Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Gruber Hurst Johansen & Hail LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

FINRA recently provided social media guidance to broker/dealers.  The Regulatory Notice  guides firms on applying communication rules to social media sites which FINRA defines to include blogs and social networking sites like Facebook.  It does not apply to sites used for purely personal reasons but the line between the two blurs as the growth of social media continues.

What are the highlights?  Here are a few:

• If a firm or its personnel are using social media to communicate about business it is required to keep records of all such communications.
• Don't recommend a security on a social media site or it will trigger the requirements of NASD Rule 2310 regarding suitability.  
• If a firm is going to recommend a security such recommendation must be approved approved by a registered principal of the firm.
• Webinars and other interactive electronic forums like a chat room are considered a public appearance under NASD Rule 2210.
• Static information on social media, such as a profile, background, or wall information must be approved by a registered representative before it is posted.
• FINRA considers a static blog an advertisement that requires approval of a principal but a blog that permits real-time interactive communications does not require prior principal approval.
• Interactive communications on a social media site that are real time do not require a registered principal’s approval.  
• Even though a principal's prior approval may not be necessary, the firm must supervise these electronic communications in a manner reasonably designed to ensure they do not violate the content requirements of FINRA's communication rules.

The notice goes on to provide more detail on supervision of social media sites and third-party posts.  Needless to say it's unlikely that a broker/dealer will recommend a security over Twitter or Facebook - that's just not smart at a number of levels.  Any real time communications regarding securities will require supervision by the firm and archiving of those communications.    I'm not sure the notice will "chill" social media use by broker/dealers but I'm also not sure it will drive them to use it as a business device other than general networking.

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From late 2008 through 2009 financial advisors were on the move.  Thousands of brokers left their positions with firms like Merrill Lynch, Wells Fargo and UBS.  Many transitioned to new brokerage houses enticed by lucrative signing bonuses and compensation packages.  Others were simply unsure of ever changing policies and compensation systems that resulted from industry consolidation such as the Merrill/BofA merger.

There were non-compete/non-solicitation lawsuits many of which were discussed here.  With the protocol in place, many FAs can transition to new jobs without the fear of a lawsuit.  Nevertheless, moving your business to a new employer is work.  Some clients are loyal to the institution, others simply don't want to move, and the former employer will put a full press on to keep the departing brokers' business once they announce their intentions to leave.

According to a recent Reuters' article , the recruiting seen over the last year will calm down in 2010:

Veteran recruiter Michael King, of Michael King Associates, said movement will slow because so many brokers are now tied to their firms, either with retention plans or because they accepted recruiting packages with long-term commitments.

"The big wave was last year, from the end of '08 through the first half '09. A lot of the people who wanted to move, moved," King said. "And many of the people who have not moved are already under contract."

Companies will still offer lucrative incentives to move, but the pool available to transfer appears to have dried up for now.  Of course, the pool will repopulate after the deals inked in 2009 expire and some brokers look for the best new deal. 
 

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The Conan O'Brien/Jay Leno imbroglio of the last couple weeks appears to be winding to an end.  According to reports from TMZ, Conan will receive a $32.5 million dollar payout but sit on the bench and not start a new show until September.  The rumor is he will start a new show with Fox.

There has been speculation that Conan had a non-compete agreement with NBC.  Jay Shepherd points out in his blog that it is unlikely the non-compete was governed by California law because it would be unenforceable:

And California, as many of you know, prohibits noncompetes. Section 16600 of the California Business and Professions Code makes employment-related noncompetes — like the one Conan reportedly has — void.

Unfortunately, his contract with NBC is not available on line, but let's assume Conan had an enforceable non-compete under Texas law.  (There are a whole bunch of reasons why it's not, but give me some latitude.)  What can Conan teach us?  Bottom line, negotiations never end.  Conan's failure at NBC actually created leverage for him in negotiations.  NBC wants Leno back in hopes that he will drive up ratings but is tied to Conan who waited for years for Leno's departure.  Conan isn't going to go back to the later time spot, who knows what his contract says about that.  So NBC elects to pay him off.  Much of the money is salary he would have earned in the interim anyway, and he agrees to stay on the sidelines for a few month.  Win win, or so it seems.

The typical employee is not Conan and the typical employer is not NBC.  But, when an employer is facing a departing employee with a non-compete that may be unenforceable it's time to think outside the box to see if some other type of resolution can be reached.  Maybe an agreement to stay away from certain customers or stay out of the industry for a shorter time - be creative.  The same goes for the employee.  This won't always be appropriate but it beats significant legal fees, expedited discovery, and  temporary injunction hearings. 

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Non-compete agreements cover a range of businesses/industries from financial services, to food and beverage, dance studios, and even pet care.  It should come as no surprise that a lawsuit was filed by Surgical, Cosmetic, and Weight Loss Centers of America against a former employee that started work with the University of Texas Medical Branch - Center of Weight Loss Management.  The lawsuit was filed in Jefferson County, Texas.

The Defendant signed a three year noncompete that restricted her from working for a competing business that was within a 25 mile radius of her former employer.  Three years is a long time for a non-compete but Texas courts evaluate non-compete terms on a case by case basis - there is no bright line rule on the term of a non-compete.   The employer alleges in the lawsuit:

Defendant, while working for plaintiff, was provided material, substantive benefits which made defendant as a medical professional more marketable in the field of her expertise. . .

As previously discussed, a Texas non-compete agreement must be ancillary to an otherwise enforceable agreement.  Employers usually claim that some type of trade secret was provided to the employee.  It will be interesting to see what benefits were provided to the Defendant in this case that give rise to the non-compete.  Typically, employers fail in enforcing non-competes when they cannot establish that they provided the employer with the consideration promised, such as specialized training, access to trade secrets, etc.  Assuming the scope and duration of the non-compete are acceptable, an attack on consideration is one of the last lines of attack in Texas after recent rulings from the Texas Supreme Court.

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Mike Leach's application for a temporary restraining order to permit him to coach Texas Tech in the Alamo Bowl on January 2 was mooted when Tech fired him on December 30.  Allegedly, the timing of the firing was based on Leach's contract that entitled him to $800,000 on December 31. Tech went on to beat Michigan State 41-31. Tech now begins the search for a new coach and Leach's lawyer has promised a lawsuit.

Even without the firing, Leach faced an uphill battle.  As discussed here previously, an applicant for a TRO must establish there is no adequate remedy at law and imminent harm, among other things.  Leach sought to prevent Tech from suspending him from coaching the football team because he essentially was deprived of due process.  The Petition provided:

8.  Mike Leach seeks that this Court enter an order restraining Texas Tech University from suspending Mike Leach from coaching the football team.

 

9.  It is probable Mike Leach will recover from Defendant after trial on the merits because Mike Leach has not committed any wrongdoing, he has not been informed of any rules or standards he violated, and his contract does not provide for suspension even if Defendant had shown a violation of a rule or standard, which it has not.

10.  If Mike Leach's application is not granted, harm is imminent because Mike Leach will be unable to coach his football team in practice prior to the Alamo Bowl and during the Alamo Bowl.

The claimed basis for the firing of Leach stems from his treatment of sophomore Wide Receiver Adam James following a concussion.  James' is the son of former SMU player and television analyst Craig James.  Leach reportedly had James confined to a shed as described in the affidavit of a Tech football trainer:

I walked Adam to the room, which was at least as big as a two-car garage . . .Inside the room there is an electrical closet. I looked in the closet and stated that there was 'no way that Adam would be placed in there.' I shut the door to the electrical closet, and it was never opened again. At no time during this practice was Adam ever placed in the electrical closet.

Regardless of what actually occurred, it seems unlikely a Texas court would have ordered Tech to permit Leach to coach in the Alamo Bowl.  Leach's claim that he would suffer imminent harm because he could not coach is unpersuasive.  An employer generally has the right to restrict or modify the duties of an employee, as Tech did with Leach.   In response to the TRO application, Tech took the decision away from the Court and fired Leach.

The Leach/Tech battle is a long way from over.  With a significant amount of money at stake, Leach, a lawyer himself, will continue his legal fight.  Stay tuned. 

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Whenever I talk with an employee or employer about a noncompete or nonsolicitation agreement the number 1 question is "Can you provide me with the agreement you (or the employee) signed?"  Usually, the employer has a nice neat employment file that contains all agreements.  Employees on the other hand are usually a different story. 

In the last week I've talked to two highly paid employees who were contemplating making a move to a new company.  One thought they had a noncompete, the other couldn't remember.  Neither had the actual agreement but was going to request one from their employer. 

An employee requesting their employment agreements at the end of the year sends out a red flag - "I am looking for a new job."  There is a lot of employment transition at the end of the year as the employee has presumably received their bonus and there is less financial incentive to stay.  Yes, your employer will provide you with your agreements, but if they're smart you will be under the microscope.

Point is, keep anything you sign with your employer.  Ask for a copy at the time you execute any agreement, including any amendments or supplements you sign through the years.  It just makes good sense for a variety of reasons.  Remember, the agreement your coworker signed isn't necessarily the same agreement you signed. 

(H/T Virgina Non-Compete Law Blog)

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Happy Holidays to you and your family.  Below are a few of my favorite deposition clips:

This back and forth is priceless:

 The masked man deposition:

My all time favorite with Texas legend Joe Jamail:

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It's that time of year - the NFL season is drawing to a close and fantasy football leagues are in the midst of the playoffs.  Fantasy leagues are as popular as ever and cover all sports, not just football.  Fantasy leagues based on the NFL are by far the most popular and in many instances are comprised of co-workers and in some cases the use of company resources like email.

Which leads us to the firing of four employees in Fidelity Investments' Westlake, Texas office for playing Fantasy football.  Fidelity's take on the firing:

We have clear policies that relate to gambling. Participation in any form of gambling through the use of Fidelity time or equipment or any other company resource is prohibited. In addition to being illegal in a lot of places, it can also be disruptive. We want our employees to be focused on our customers and clients.

One of those fired, Cameron Pettigrew, knew that Fidelity did not permit playing fantasy on company time but claimed he never used company email for the league.  Fidelity did find two instant messages that included fantasy content.  Pettigrew explained:

One of my buddies sent me something about how bad Trent Edwards was playing or something like that, So they called me in and talked to me for about 90 minutes on everything I ever knew about fantasy football. They interrogated me as though I was some sort of international gambling kingpin. Then they released me for the day, and I was like, 'OK.’ I never thought they’d fire me for this, but, the next day, I get the call saying I had been terminated.

Tough time of year to be fired and Pettigrew knew he wasn't allowed to play at work, but was he really playing?  The Ft. Worth Star Telegram asked its readers if Fidelity overreacted:

Did Fidelity overreact by firing fantasy football players?
(1) No. (19%, 60 votes)
(2)Yes. (57%, 185 votes)
(3)Depends. (There's no way outsiders can know the whole story.) (24%, 78 votes) 

It seems unlikely that Pettigrew and his cohorts have any legal challenges to the firing as Texas is an at-will employment state.   If a company has a policy against playing in a fantasy league during work time, don't play.
 

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Tiger Woods'  use of text messaging underscores the repercussions such communications can have, especially when the messages are released from the recipient to a third party.  Apparently, Tiger sent text messages to one of the women he is alleged to have had an affair with and she has offered the texts as proof.  Tiger isn't the first to down by way of the text message, as former Detroit Mayor Kwame Brown can attest to, and odds are he won't be the last. 

Text messaging may appear to be "safe" for communications of this sort but it is not.  In addition to the Tiger example, texting can be front and center in lawsuits.  Consider a scenario where two employees decide to leave their employer and take valuable customer information with them.  They coordinate their departure through text messages because they believe this is safe communication as opposed to email.  Is it?  Can the employer obtain the texts through discovery?  

There are three potential sources to obtain text messages: the phone, the phone company, or the recipient. Once texts are deleted from the phone, it "sticks around" as described in Slate:

until enough new information is added to fill that memory, your old text message will remain on your device. If you used a SIM card to store your text messages before you erased them, then there might be space for the remains of 30 or so deleted messages; if the messages are downloaded directly to your phone, several hundred deleted messages could stick around on your device. Eventually, of course, the deleted messages will disappear as memory is filled with new messages, photos, or videos.

Phone providers have different policies on how long they maintain text files: AT&T Wireless keeps messages for 48 hours while Sprint keeps them on its server for approximately two weeks.  So it is unlikely that text messages can be obtained from the phone company unless you know about the messages near the time they were sent.

The third source, the recipient could keep the text forever.  They could print out the text, save it, or send it to other people.  The point is once you release the text message, just like an email, you have effectively published it to the world. 

The party to a lawsuit may have a difficult time obtaining text messages through discovery but should include requests for these types of communications.  Also, in appropriate instances, discovery should be directed to potential third-party recipients of such messages.

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