Fired Law Firm Employees Who Reported Overbilling Can Sue

The law firm Clark & Fox can’t force into arbitration two former employees who claim they were fired for reporting fraudulent overbilling, because the arbitration agreement they signed isn’t enforceable, a federal court in New York said.

Joshua Seltzer and Aaron Jacob said they reported to firm management what they believed to be another Clark & Fox employee fraudulently overbilling a client. They were fired for supposed insubordination in retaliation, the two alleged. Seltzer and Jacob also claimed the defendants accessed their email accounts and deleted large quantities of data.

They sued the law firm, principal owner John M. Clark, and chief operating officer Terri Ferrante.

Seltzer and Jacob claimed they were wrongly terminated in violation of New York’s implied duty for law firms not to discourage compliance with the rules of professional conduct. They also alleged violations of the Computer Fraud and Abuse Act and the Stored Communications Act,

The U.S. District Court for the Southern District of New York on Thursday rejected Clark & Fox’s motion to send the case to arbitration.

Seltzer and Jacob signed forms indicating they’d comply with the firm’s employee handbook, which contained an arbitration provision. But the handbook also expressly disavowed that it created contractual rights or duties, described itself as “guidelines only,” and reserved to Clark & Fox the right to unilaterally alter the handbook at any time, without notice, the court said. “If that were not clear enough, the acknowledgments signed by Plaintiffs repeat these many limitations,” it added.

The handbook also didn’t indicate to employees that forgoing their right to sue was a condition of employment, unlike other firm policies, the court said.

Therefore the handbook doesn’t create an enforceable contract limiting the plaintiffs to arbitration, Judge Alvin K. Hellerstein said.

The firm largely handles insurance matters.

DeBofsky & Associates PC represents the plaintiffs. Weber Gallagher Simpson Stapleton Fires & Newby LLP represents the defendants.

The case is Seltzer v. Clark Assocs., LLC, S.D.N.Y., No. 1:20-cv-0468, 9/3/20.