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While most employees on Wall Street are at-will employees, it is a common practice for financial services firms to require retail brokers, branch managers, investment bankers, private bankers, etc., to sign employment agreements. These agreements may contain various restrictive clauses, language regarding bonus and compensation disputes, treatment of proprietary information, etc. Any employee presented with an employment agreement should consult experienced securities employment attorneys like those at Lubiner, Schmidt & Palumbo before signing such an agreement.
While the large brokerage houses have in-house employment attorneys, medium and small firms, with smaller or non-existent legal staff, should also consult securities employment attorneys in drafting employment agreements before presentation to their employees.
Many agreements intended for retail brokers have non-competition or non-solicitation clauses. Non-competition clauses restrict the ability of a departing employee from working in the same industry within a specified geographical range for a specific time. Non-competition agreements are generally looked upon unfavorably by courts (California expressly prohibits them). Courts may enforce them if they are deemed reasonable; unreasonable non-competition agreements may be amended by a court to make them more reasonable in the court’s view.
Non-solicitation agreements are more common. They prohibit the departing broker from taking client account information and soliciting the clients she previously serviced to join her at her new firm, typically for one year.
However, in 2004 four large broker-dealers entered into the Protocol For Broker Recruiting, also known as the Recruiting Protocol. The Recruiting Protocol sets forth an agreed-upon procedure for brokers to follow when they resign from a Protocol member firm to join another member firm. The Protocol permits the departing broker to take some contact information (but not account documents) for the clients she serviced. If the resigning broker follows the Protocol, the broker is permitted to solicit her former clients and the former employer agrees that it will not seek to enforce any non-solicitation agreement the broker may have signed.
There are presently over 1,000 firms that are members of the Recruiting Protocol.
If the former firm is not a member of the Recruiting Protocol, or if the new firm she is joining is not a member, the former employer may seek to enforce any non-solicitation agreement.
Less common in retail sales, but more common in institutional sales and investment banking, are “garden leave” clauses. They require an employee to remain employed at a firm for 30, 60 or more days after announcing his resignation. The departing employee continues to receive salary and health benefits but is told to go home. He is still employed by the firm and therefore continues to owe the employer the duties owed by employees to their employer.
In any of the scenarios above, an employee contemplating leaving her current firm to join a competitor should consult with an experienced securities employment attorney before resigning.
With the merger of two brokerage firms, or the acquisition of one firm by another, brokers are often presented with a retention agreement. This agreement may define the employee’s role at the new or combined firm, changes in compensation arrangements, conditions to qualify for a retention bonus, etc. An experienced securities employment lawyer should review agreement before the employee commits to it.
Lastly, whether due to mergers, takeovers or downsizing, financial industry employees are frequently offered severance agreements. These agreements may contain various restrictive clauses, terms and conditions to be met now (and in the future) to receive a severance payment, etc. A knowledgeable securities employment attorney can assist the recipient of a severance offer to fully understand the immediate and future repercussions of the agreement and help the employee to negotiate a more favorable severance offer.
There are numerous significant and complicated issues involved in the drafting, negotiation and acceptance of employment agreements in the securities industry. Individuals and firms require the assistance of experienced securities employment attorneys to insure that any employment agreement is fair and legally binding.