National banks may be missing out on a defense available to them against certain state-law employment claims brought by terminated bank officers. In particular, the National Bank Act (NBA) allows national banks to dismiss officers “at pleasure, and appoint others to fill their places.” This provision has been interpreted to mean that state-law tort and contract wrongful discharge claims by terminated bank officers are preempted and, thus, subject to dismissal. See, e.g., Boesch v. Champaign National Bank, Case No. 24014 at 6 (9th App. Summit Cty., June 30, 2008); Schweikert v. Bank of America, Case No. 06-2137 (4th Cir. April 1, 2008).

The NBA preemption defense applies, however, only when a bank’s board of directors makes the termination decision or delegates the authority to do so and then ratifies the decision. The board’s ratification need not occur before or on the termination date, but it needs to occur as promptly afterward as possible.

NBA preemption covers state-law tort and wrongful discharge claims such as intentional infliction of emotional distress, breach of contract, and wrongful discharge in violation of public policy, to name a few. The preemption defense does not apply to federal statutory claims, such as claims for race discrimination under Title VII, age discrimination under the Age Discrimination in Employment Act, or disability discrimination under the Americans with Disabilities Act. Whether the NBA’s preemption defense applies to state-law statutory discrimination claims is an open question. For instance, one state appellate court has held that the NBA preempts state-law discrimination claims. Boesch, supra. Another state appellate court has held that NBA preemption does not apply to such claims. White v. Fed. Reserve Bank (8th Ohio App. 1995), 103 Ohio App.3d 534, 539.

Given the likelihood of dismissal of at least some state-claims, is there any downside to asserting NBA preemption as a defense in bank officer employment cases? Yes, several do exist. Since a bank’s board must be “involved” in the termination decision in order for the defense to apply, asserting the defense will subject the board and its members to discovery during the litigation where the bank asserts NBA preemption. That could be inconvenient and time consuming. Also, in some states, board members could be subject to claims of personal liability, such as under anti-discrimination statutes, based on their involvement in the termination and ratification decision. Thus, limiting the board of directors’ involvement to just NBA ratification purposes and/or obtaining liability insurance for board members are important considerations toward alleviating those concerns.