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Weil Secures High-Profile Appellate Victory for Marsh & McLennan in Dispute with Former Executives

Second Circuit Affirms Right to Terminate Employees for Failure to Cooperate with Internal Investigation

On June 16, 2016, Weil obtained a complete appellate victory for Marsh & McLennan before the Second Circuit in a dispute with two former executives whose employment Marsh terminated in connection with the New York Attorney General’s 2004 investigation into the insurance industry and Marsh’s parallel internal investigation. The former employees sought to recover employment benefits they lost following their termination. In a 23-page opinion, the Second Circuit affirmed a trial court’s summary judgment decision that dismissed plaintiffs’ claims, and importantly acknowledged that Marsh had cause to terminate the employees for refusing to comply with the company’s internal investigation.

Marsh terminated the plaintiffs’ employment in 2004 when they refused to be interviewed in Marsh’s internal investigation into the NYAG’s allegations regarding the use of “contingent commissions” and alleged bid-rigging. The plaintiffs were later indicted and convicted on one count of Restraint of Trade & Competition, although their convictions subsequently were vacated based on the prosecutor’s failure to disclose certain evidence to defense counsel.

In their complaint, the plaintiffs asserted claims against Marsh for malicious prosecution and abuse of process, on the theory that Marsh conspired with the NYAG to offer them up as targets for prosecution in lieu of the corporation. The plaintiffs also asserted claims under ERISA and state law, seeking severance benefits that Marsh did not pay to them after it terminated their employment and the value of stock options and other equity awards that they forfeited upon the termination of their employment.

In June 2012, the U.S. District Court for the Southern District of New York dismissed the plaintiffs’ claims for malicious prosecution and abuse of process on the pleadings. In its January 2015 decision granting Marsh’s motion for summary judgment, the Court dismissed Plaintiffs’ remaining claims for severance benefits under ERISA and for the value of their forfeited equity awards under state law.

In its opinion affirming the summary judgment decision in its entirety, the Second Circuit for the first time established a solid legal framework supporting the right of a company to terminate an employee who fails to cooperate in an internal investigation. Indeed, the Court notably held that “Given the circumstances, Marsh’s demand that Gilman and McNenney explain themselves in an interview under the penalty of termination was unassailable, even routine. It did what any other company would do, and (arguably) what any company should do. Marsh’s interview demands were reasonable and it had cause to fire Gilman and McNenney for refusing to comply.” The Court’s ruling should be of considerable value for companies with regard to how they may conduct internal investigations against a backdrop of government regulatory and criminal investigations.

Litigation Department Co-Chair Jonathan D. Polkes argued the appeal for Marsh before the Second Circuit. The Weil team also included Appellate partner Gregory Silbert and Employment Litigation partner Nicholas J. Pappas, and associate Adam Banks, all in the Firm’s New York office.