Employment-New York Court Of Appeals Holds That A Compliance Officer Of A Hedge Fund Is An At-Will Employee Who May Be Dismissed At Any Time

In Sullivan v. Harnisch, 2012 NY Slip Op 03574 (NY Court of Appeals May 8, 2012), the Court stated that New York common law does not recognize a cause of action for the wrongful discharge of an at-will employee. In this case, it would not make an exception to that rule for the compliance officer of a hedge fund.

The plaintiff, Joseph Sullivan (“Sullivan”), was a 15% partner in two affiliated firms, defendants Peconic Partners LLC and Peconic Asset Managers LLC (collectively called “Peconic”, and colloquially referred to as a hedge fund). He was also Peconic’s Executive Vice President, Treasurer, Secretary, Chief Operating Officer and Chief Compliance Officer. Defendant William Harnisch (“Harnisch”) was the majority owner, Chief Executive Officer and President of Peconic.

Sullivan was fired from Peconic after a dispute with Harnisch . The dispute started when Sullivan complained about certain improper trades by Harnisch, which consisted of sales of stock by Harnisch for his personal account and the accounts of members of his family, and which allowed Harnisch to take advantage of opportunities from which the hedge fund clients were excluded. This suit ensued, with Sullivan claiming wrongful discharge.

In analyzing the case, the Court said that, absent a violation of a constitutional requirement, statute or contract, in New York, an employer’s right at any time to terminate an employment at will remains unimpaired. Sullivan’s claim for wrongful discharge is barred, unless something in this case justifies an exception to the foregoing rule. The courts do recognize one exception: wrongful discharge will result when an attorney is discharged from employment at a law firm because he complained of professional misconduct. However, this exception is based on the unique circumstances of the legal profession, in that compliance with ethics is the center of the relationship of the attorney to the law firm. A compliance officer of a hedge fund is not in the same position as an attorney. Thus, no exception to the at-will rule applies to Sullivan, and his claim for wrongful discharge fails.