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Wells Fargo Advisors recently agreed to pay $3.5 million to settle a class action suit filed by four former employees required to reimburse the firm for trainee costs.
Most large wire houses require trainees to sign an agreement, in which, among other things, the trainee acknowledges that the firm incurs certain costs during the period new employees, also new to the securities industry, receive training before becoming registered persons. If the trainee leaves the employ of the firm prior to a specified period (typically, two to five years from registration) but stays in the securities industry, the agreement requires the trainee to repay the firm the stated “trainee” costs.
The plaintiffs in the class action alleged that the trainee costs set forth in the contracts did not reflect the actual costs to the firm and that the contracts violated state and federal labor laws. Wells Fargo’s trainee agreements required employees to pay back up to $55,000 in reimbursement charges. The settlement covers 2,000 individuals who worked at Wells Fargo from November 2011 through the end of 2016.
As part of the settlement Wells Fargo agreed to stop all collection efforts against former trainees and to not initiate any such efforts in the future.
Over the years, some firms have been aggressive in seeking repayment of the trainee costs, with varying degrees of success. But the Wells Fargo settlement may prove to be the impetus for similar moves by other firms. Indeed, Morgan Stanley stopped pursuing former employees for trainee costs several years ago. Merrill Lynch announced last year that it would no longer seek reimbursement for trainee costs.
On the other hand, Edward Jones continues the practice of seeking reimbursement for trainee costs in “appropriate cases,” according to an article reporting the Wells Fargo settlement.
This situation points to the necessity for a prospective employee of a brokerage firm to consult with an experienced securities employment attorney prior to signing any type of employment agreement with a new employer. Contact the lawyers at Lubiner, Schmidt & Palumbo for assistance in reviewing any employment agreement presented to you by a current or prospective employer.