Employer statements to NASD can’t be the basis for defamation lawsuits

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in Discrimination and Harassment,Firing,HR Management,Human Resources

Attention: HR pros in financial services firms: If you’ve worried that reporting a terminated employee’s alleged wrongdoing to the National Association of Securities Dealers (NASD) might leave you open to a defamation lawsuit, relax. The Court of Appeals of New York has ruled such statements are absolutely privileged.

Recent case: Chaskie Rosenberg, a Hasidic Jew, worked for MetLife as a financial services representative at the insurer’s Brooklyn office. Most clients were also Hasidic Jews.

MetLife fired Rosenberg after an audit revealed he had accepted third-party checks for premium payments. MetLife has a rule against accepting third-party checks, believing that such payments could be used to hide money laundering or the purchase of speculative life insurance: that is, buying life insurance on others as an investment that pays off when they die.

Because Rosenberg held a securities license, MetLife reported the reason he was fired to NASD, as the law requires. Rosenberg sued, alleging religious discrimination and defamation. He explained that the third-party checks were innocent and involved a way that clients could avoid religious prohibitions against charging or paying interest by drawing funds from a Jewish free-loan society.

The federal court hearing the case asked the Court of Appeals of New York to tell it whether an employer’s statements made to NASD could be defamation if they were false. The court ruled that employers have an absolute privilege covering anything they say to NASD about why they fired an employee, even if the information turns out to be wrong and the employer knew—or should have known—it wasn’t true. The statements are privileged to encourage employers to report possible wrongdoings so NASD can make sure securities representatives aren’t swindling the public. (Rosenberg v. MetLife, No. 23, Court of Appeals of New York, 2007) 

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