The United States Court of Appeals for the Second Circuit recently ruled that two former employees of Marsh cannot recover certain employment benefits they lost after they were terminated for refusal to comply with the employer's request to participate in interviews during an internal investigation. Gilman et al. v. Marsh & McLennan Co. Inc. et al., Docket No. 15-0603-cv. (June 16, 2016). The decision demonstrates that employers generally have a substantial leverage over an employee involved in an internal investigation, because the employee's failure to cooperate can constitute a valid cause for termination.
In April 2014, the New York Attorney General ("NYAG") began investigating Marsh over certain "contingent commission" arrangements. In response, Marsh initiated an internal investigation. During that time, the two plaintiffs were interviewed by Marsh's outside counsel.
In September 2004, the investigation shifted focus to certain alleged bid-rigging schemes involving Marsh and other insurance carriers. The two employees were identified as co-conspirators in a criminal indictment against another individual also involved in the scheme. At the same time, Marsh was named as a defendant in a civil action relating to the same antitrust violation. Marsh demanded that the two employees submit to further interviews and warned them that refusal to comply might result in employment action.
Marsh's senior management met with the NYAG on October 25, 2004. After that meeting, NYAG announced that criminal prosecution for the bid-rigging scheme would be limited to individuals, indicating that Marsh was cooperating with NYAG. Subsequently, both employees refused to be interviewed. One employee submitted paperwork for an early retirement prior to notifying Marsh that he would not submit to the interview. Marsh fired both employees.
The two employees sued Marsh seeking recovery of lost employment benefits. The district court granted summary judgment in favor of Marsh, reasoning that the interview refusal provided Marsh "causes" for termination, and therefore the employment benefits were rightly forfeited.
Second Circuit's decision
Second Circuit affirmed the lower court's summary judgment.
The court observed that a valid "cause" for termination under Delaware law includes an employee's refusal to obey a "direct, unequivocal, reasonable order of the employer." The court found that Marsh's request that the employees be interviewed was reasonable. In fact, the court noted that simply being implicated in a criminal investigation, even if later acquitted, would provide a "just cause" for an employer to fire an employee regardless of whether the employee agrees to cooperate in an interview. Thus, it follows that the cause should not be weakened by the employer's action of providing a chance for the employee to explain, especially given that the employer has its own interests in protecting its investors and other stakeholders. In this regard, the court recognized that the employee might be in a tough position, but stated that Marsh had the right to choose to protect itself. The court commented that Marsh "did what any other company would do, and (arguably) what any company should do."
The court further held that an employee cannot preempt a known, imminent, for-cause termination with a voluntary retirement. The court reasoned that otherwise, the definitions of "cause" in the employment contract would be "meaningless or illusory."
Lastly, the court found no state action by Marsh even though it was cooperating with NYAG, because Marsh's request was not forced, steered, or supervised by the government. The former employees relied upon United States v. Stein, 541 F.3d 130 (2d Cir. 2008), where KPMG changed its longstanding policy of advancing attorneys' fees to employees at the request of the federal prosecutors. The court held that such an action was "a direct consequence of the government's overwhelming influence."
The court emphasized that in Stein, the government forced, intervened, and steered KPMG's action, while in this case, Marsh made the interview requests on its own accord. Further, the interview requests were raised before the Marsh's meeting with the NYAG, and there was no evidence that the government was framing the scope of the interview. In rejecting the state action argument, the court clearly considered the potential chilling effect it may have on corporate cooperation in criminal investigations.
Implications for corporate internal investigation
The decision should come as no surprise to practitioners focusing on internal investigation and corporate compliance. Employee interviews are a critical tool for companies to collect useful information and formulate defense strategies in an internal investigation, and it is important for a company to have a broad right to use this tool regardless of whether its intention to cooperate is imminent or well-known.
Undoubtedly, there is a real risk to an employee that incriminating information could be handed over to government enforcement authorities through disclosure by the company of the employee's statement. However, this decision suggests that employees cannot use their Fifth Amendment rights to shield their employment responsibilities to cooperate, and failure to cooperate in corporate investigations will provide an employer with a valid cause to terminate the employee.