The Second Circuit Holds That Employees Can Be Fired For Not Wanting To Incriminate Themselves

Don't be accused of a crime if you want to keep your job.

gavel scales of justiceThe Yates memo caused a lot of concern in the white-collar defense community. DOJ announced that it intends to go after individuals, and not just companies, whenever possible as it investigates and brings charges involving corporate wrongdoing.

There are still some open questions about how the Yates memo will work in practice and — in some very active white-collar districts — it’s been the practice all along. One large question is how aggressively the Department of Justice will require companies to fire executives or other employees who don’t cooperate with internal investigations, especially when those executives fear that what they say can be used to build a criminal case against them.

Of course, DOJ doesn’t have to overtly pressure to get companies to fall in line. As long as the lawyers running the internal investigations fear that DOJ will look negatively on their client if the company doesn’t fire employees who refuse to talk, the effect will be the same.

And that effect, to be clear, is that people who have a reasonable fear of being swept up in a criminal prosecution will have a choice between their Fifth Amendment rights and their job.

For many executives, there’s a backstop on this: their employment contracts. Yet, as reported in Dealbook recently, the Second Circuit meaningfully eliminated much of that protection.

Back when Elliot Spitzer was the Attorney General of New York, his office was investigating a company — Marsh & McLennan — for bid rigging. The company did an internal investigation. As a part of that investigation, the company’s lawyers wanted to interview William Gilman and Edward McNenney, two employees of the company.

Gilman and McNenny were named as co-conspirators by an executive at another company as a part of his guilty plea in the bid rigging conspiracy. To put it mildly, Gilman and McNenney had a reasonable fear of prosecution.

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The company’s lawyers ordered the two to sit for interviews. McNenney refused and was fired. Gilman scheduled an interview for November 2. On November 1 he filed paperwork stating that he was retiring. Later that day, his lawyer told the company’s lawyer that he wouldn’t be coming in for an interview because he was retired. The company refused to accept his retirement request and fired him.

The company took the position that it fired the two men for cause. That meant, in effect, that they lost severance benefits and substantial retirement and stock benefits. The two men sued.

The district court granted summary judgment for the company and the two appealed to the Second Circuit. Under the controlling law, the question is whether the company’s order that the two sit for an interview was “direct, unequivocal, and reasonable.” Everyone agreed it was direct and unequivocal. The question is whether it was reasonable.

The Second Circuit took a hard line, saying that the company could have fired the two as soon as they were named as co-conspirators by someone else, let alone when they refused to sit for an interview (internal citations omitted):

When Gilman and McNenney were named as co‐conspirators in a criminal bid‐rigging scheme for their conduct as Marsh employees, it was obvious (as Gilman and McNenney themselves affirmatively argue) that the AG intended to prosecute them criminally. At that time, Marsh had sufficient basis to act on the allegations, made under oath in open court, and would have had cause to terminate Gilman and McNenney, regardless of the ultimate resolution of the allegations. “When an employer, because of an employee’s wrongful conduct, can no longer place the necessary faith and trust in an employee, [the employer] is entitled to dismiss such employee without penalty.” If Marsh had indeed fired them then, it would have been for cause, and Gilman and McNenney would for that reason have been ineligible for the employment benefits they currently seek. It is difficult to see how their claims for benefits improved because Marsh instead gave them the chance to explain themselves, and they refused to comply.

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That’s a tough consequence from some other person just saying that you’re involved in a criminal case; it’s not that they were proven to have engaged in wrongdoing, only that they were alleged to have been engaged in wrongdoing.

The Court had little concern for the Fifth Amendment implications of its decision (again, internal citations omitted):

Marsh’s demands placed Gilman and McNenney in the tough position of choosing between employment and incrimination (assuming of course the truth of the allegations). But though Gilman and McNenney “may have possessed the personal rights to [not sit for interviews], that does not immunize [them] from all collateral consequences that come from [those] act[s],” including leaving Marsh “with no practical option other than to remove [them].” “[T]here would be a complete breakdown in the regulation of many areas of business if employers did not carry most of the load of keeping their employees in line and have the sanction of discharge for refusal to answer what is essential to that end.” Marsh had to use the “sanction of discharge for refusal to answer,” because in the absence of an exculpatory explanation, Marsh needed to assume the worst: that the bid‐rigging allegations were true and that Marsh was vicariously liable for their criminal conduct.

If these employees had worked for the federal government, instead of a private employer, then their statements to a government investigator could only be compelled if they couldn’t be used against them criminally. But private sector workers have no similar protection.

The federal workforce does need to recruit more people; perhaps keeping your Fifth Amendment rights is a fair trade-off for the salary cut that public sector employment may bring.


Matt Kaiser is a white-collar defense attorney at KaiserDillon. He’s represented stockbrokers, tax preparers, doctors, drug dealers, and political appointees in federal investigations and indicted cases. His twitter handle is @mattkaiser. His email is mkaiser@kaiserdillon.com He’d love to hear from you if you’re inclined to say something nice.