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Significant New York Employment Law Decision by Stephen M. Kramarsky

New York is an “at will employment” state. This means that, under New York law, employers are generally free to terminate employees as they see fit, absent an agreement to the contrary or some improper purpose (such as retaliation or discrimination). But a recent decision of the First Department adds a narrow, but potentially very substantial exception to that well-established rule. In Laduzinski v. Alvarez & Marsal Taxand LLC (1st Dept. Aug. 25, 2015), the First Department reversed the lower court’s order granting defendant’s motion to dismiss, and allowed plaintiff to go forward on his claim of fraudulent inducement against an employer he claimed had lured him away from his old job and subsequently fired him when the new position didn’t work out.

In Laduzinski, plaintiff sought a job with defendant Alvarez and was told by an Alvarez managing director that they had “a lot of clients and were busy.” On that basis, plaintiff allegedly quit his job at J.P. Morgan and went to work at Alvarez, giving the company access to his contact list for business development. Nine months later, Alvarez fired plaintiff because there was insufficient work for him. The lower court dismissed plaintiff’s claims arising from his termination because plaintiff was an “at will” employee: plaintiff had asked for a two-year employment guarantee from Alvarez during his contract negotiations, but Alvarez had refused.

The First Department, however, read plaintiff’s claim differently. It held: “an at-will employee, who has been terminated, can not state a fraudulent inducement claim on the basis of having relied upon the employer’s promise not to terminate the contract, or upon any representations of future intentions as to the duration or security of his employment. However, where an at-will employee alleges an injury ‘separate and distinct from termination of the [his] employment,’ he may have a cause of action for fraudulent inducement. The at-will employee must allege not that his employer wrongly fired him, but that ‘[he] would not have taken the job in the first place if the true facts had been revealed to [him].’” Here, the Court held, plaintiff’s claim was not based on his termination, but on the allegation that Alvarez “misrepresented the nature of the job that they were hiring him to do, that they were only hiring him to gain access to his contacts and that if they had told him this he would not have left his job at J.P. Morgan to work for them.”

On these facts, the First Department held that a claim for fraudulent inducement could go forward, even though plaintiff’s employment agreement contained a general merger clause. The Court found that the clause was too general to bar plaintiff’s claim because it did not refer to the “particular misrepresentations allegedly made” by Alvarez here. While this exception to the general “at will” rule is somewhat narrow, the situation is not especially uncommon. Employers wishing to avoid similar issues should be clear in their expectations with potential employees, and should make the language of their merger clauses explicit and detailed.

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