NEWS FEATURE: Hedge fund managers hit by increasing workplace litigation

By Ramyar Moghadassi, Moghadassi & Associates Whether they are called lay-offs in New York or redundancies in London, economically-motivated terminations are an integral part of a recession. Depending on where they work, employees enjoy varying degrees of protection when being let go because of economic reasons.

In purely legal terms the luckier ones work in cities such as London where due to legal protection, customary practice or a combination of the two, people are offered a severance package which may include an ex gratia payment in addition to their minimum statutory entitlement.

Others, such as those working in New York, are governed by the laissez faire principles of "at will" employment, with little protection against termination unless it is based on discrimination. Otherwise, they are almost entirely at the mercy of the generosity of their employers regarding severance terms.

For most financial services employees who have seen their jobs eliminated in the current crisis, it is simply a case of accepting a severance package if offered and hopefully finding another job relatively quickly.

For some others, especially in the hedge fund sector, it is time to fight back, even if that means refusing significant severance deals.

Recent months have seen a sharp rise in employment-related claims against hedge funds. The reasons behind this escalation may be found in the way many hedge funds may have run their businesses. From a human resources point of view, they are generally more vulnerable to employment-related claims than the big banks.

Another reason is the way many fund managers may have viewed their intimate relationship with their employers, leading them to forgive and forget adverse, or even hostile, working conditions while the market was booming.

From an employment law standpoint, the vulnerability of many hedge funds is rooted in the nature of the business, whose primary focus is its long or short-term view of high risk strategies, some times at the expense of other priorities. Few on either side of the Atlantic have given significant attention to the compliance formalities of employment law.

For example, although some prudent and successful New York hedge funds provide compulsory and ongoing "equality at work" or "best practice" training for fund managers in order to protect against claims of workplace discrimination, that is hardly standard practice in the industry.

In London, hedge funds hardly fare any better. Some have even failed to abide by the most fundamental requirements of English employment law, such as providing employees with a contract within two months of starting employment or having disciplinary and grievance procedures in place in compliance with applicable statutes.

Adding to these shortcomings, some hedge funds in both London and New York have routinely turned a blind eye to abusive and/or discriminatory behaviour in the workplace.

Many fund managers continue to get on with the business of making money for their clients and themselves without much awareness of their rights under relevant employment laws. In the past, workplace harassment often went unreported and abusive behaviour ignored, as long as there were plenty of other viable options in a vibrant job market.

This state of affairs suited hedge funds and fund managers. Without intricate and expensive human resources procedures, hedge funds could lower overhead costs and streamline administrative burdens. Without wordy and restrictive contracts, fund managers could enjoy a fluid and mobile career path. That was then.

Now the world has now changed. The sharp rise of employment-related claims against hedge funds is due to several factors. The days of a buoyant job market when fund managers found it easier to move on than to stay put and fight are long gone.

As discrimination and breach of contract claims on both sides of the Atlantic could result in virtually unlimited sums of damages, many fund managers have found employment claims may be worth bringing.

For hedge funds and fund managers, the writing is on the wall. It is now time for prudent hedge funds to treat their employment law obligations like any other compliance issue. Those hedge funds which have survived the recent financial storms must realise that they are, like any other business, vulnerable to considerable claims by employees and partners.

Fund managers should come to terms with the fact that they, like any other employee, made need the protection of employment laws. For those in need of legal protection, the first step would be to become aware of their rights.