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Filling out NASD Form U-5? For now, watch what you say

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in Employment Law,HR Management,Human Resources

A federal appeals court has asked the New York Court of Appeals for help with an important legal question and the answer may impact how you fill out National Association of Securities Dealers (NASD) forms when you terminate an employee with a securities license.

Until now, employers were relatively certain that what they put on the form wouldn’t come back to bite them in the form of a New York state law defamation action.

Recent case: Chaskie Rosenberg, a Hasidic Jew, was fired from his job at MetLife along with several other Hasidic Jews. Because he held a securities license, MetLife filled out NASD Form U-5 with an explanation of the discharge, which stated, “An internal review disclosed Mr. Rosenberg appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations.”

That explanation, Rosenberg said, amounted to defamation under New York law. He argued that MetLife had—at the most—a qualified immunity for its statements, not absolute immunity. “Absolute immunity” means the employer cannot be sued for statements made on the form even if they are untrue, while “qualified immunity” means the employer can be sued if the statements were made “with malice.” Malice can be “spite or ill will,” or “knowledge of the falsity of the statement or a reckless disregard for the truth.”

Because the 2nd Circuit Court of Appeals concluded that the law was unclear, it sent the case to the New York court system for its opinion. Pending the outcome, employers should make sure any comments made on the form meet the qualified immunity test. That is, make sure the comments aren’t malicious or outright false. (Rosenberg v. MetLife, No. 05-4353, 2nd Cir., 2007)

Final note: The June 2007 edition of New York Employment Law covered this case’s trip through the Court of Appeals of New York. The 2nd Circuit’s latest decision put to rest Rosenberg’s case at the federal level—for now.

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