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

Predictions about a slowdown in financial advisor recruiting appear to be premature. Last week, Wells Fargo, which purchased Wachovia, which purchased AG Edwards, announced it was looking to add 1400 financial advisors.  It plans to recruit 400 new advisors and obtain the others from other firms. This comes on the heels of reports that BofA intends to add 2000 advisors.

Movement of established brokers often leads to litigation/arbitration when the parties involved are not members of The Broker Protocol.  Obviously there is no concern when a broker/dealer is hiring a trainee but even when a broker/dealer is a member of the Protocol it may still file suit or compel an arbitration when a competing firm is raiding its employees. 

Most recently, as covered by Mark Astarita of SEClaw.com, Raymond James was hit with a $12.1 million dollar arbitration award in a case involving 20 advisers in 4 branch offices. Wachovia alleged Raymond James raided its branch offices. A copy of the award is available at SECLaw.com. Allegedly, Wachovia lost $5.3 million dollars in production from the departure of the advisors. 

We'll keep an eye on BofA and Wachovia's recruiting efforts. 

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A couple of quick hits on issues previously addressed:

Arbitration

BofA is one of a number of banks to drop mandatory arbitration provisions in their agreements with credit card holders. It follows JP Morgan Chase which stopped referring credit card disputes to arbitration last month.  The tide seems to be turning against arbitration in the consumer context.  We'll see if that sentiment has any effect in the employment arena.

BofA/SEC Bonus Settlement

Executive compensation at Merrill Lynch was covered at length in the media and this blog during the early part of 2009.  Merrill attempted to settle complaints raised by the SEC but a federal judge in New York put the brakes on the settlement and has yet to rule on whether he will approve the settlement.

Cuomo Sues Schwab over Auction Rate Securities

New York Attorney General Andrew Cuomo, who earlier in the year challenged Merrill bonuses, filed a lawsuit today against Charles Schwab over auction rate securities it sold to its customers. In a statement released today, Mr. Cuomo stated:

Charles Schwab owed its customers a duty to properly understand and make accurate representations concerning auction-rate securities. Today we commenced a lawsuit to remedy Schwab’s repeated breach of that duty.

There are numerous auction rate lawsuits pending throughout the country as investors, large and small, are unable to obtain funds invested in these securities.

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In a previous entry I addressed the Fifth Circuit Court of Appeals'  recent ruling making arbitration awards virtually impossible to appeal in Citigroup Global Markets Inc. v. Bacon. 

A few weeks later, the U.S. Supreme Court upheld an arbitration agreement that required employees who were parties to a collective bargaining agreement to arbitrate their age discrimination claims.  Michael Moore's discussion of the opinion in the Pennsylvania Labor and Employment Blog is worth a look on this decision.

So, it's a no brainer, arbitration is the way to go for all employment claims, right?  Not so fast.  Jon Hyman of the Ohio Employer's Law Blog offers a dissent.  Jon cites the escalating costs associated with arbitration as a reason to reconsider the process:

In my experience, however, arbitration can prove just as costly as court. More and more arbitrators are allowing plaintiffs to engage in discovery that is nearly as expansive (and expensive) as what is permitted by trial courts. Additionally, employers have to add into the equation the cost to file the claim, which the employer usually shares. With the American Arbitration Association, these fees can run anywhere from $950 to a cap of $65,000. These fees do not include the arbitrators’ time, which often exceeds $500 per hour, and includes all pre-hearing conferences, discovery and motion practice, the actual hearing time, and the drafting of the opinion. It is not hard to see how in many cases the defense costs associated with arbitration outweigh defense costs in a traditional court proceeding.

He goes on to suggest considering using  jury trial waivers in employment agreements.  Though waivers won't keep pre-trial and discovery costs down, they will make trial cheaper and avoid a runaway jury.  Having a judge as the finder-of-fact usually makes things more predictable.  Of course, make sure the jury trial waiver is enforceable in the jurisdiction where it is going to be used.

 I recently spoke with an employment arbitrator who told me he gives the parties wide latitude on the amount of discovery in arbitrations as long at there is agreement.  His ultimate concern is not so much the amount of discovery, but the length of the case.  He aims to resolve all cases within 6 - 9 months.  The less time lawyers have to work on the case, the less fees incurred.

As an aside, the Texas Legislature is considering legislation to limit arbitration in certain consumer transactions.

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Employers use arbitration clauses to encompass a myriad of claims that might be asserted by departing employees.  In a recent opinion from the Southern District of Texas, U.S. District Judge Andrew Hanen granted an employer's motion to compel arbitration claims asserted by six employees for violations of the Fair Labor Standards Act. 

Surprisingly, the employer failed to sign some of the ex-employees’ arbitration agreements, but the Court ruled that:

As long as the parties give their consent to the terms of the contract, and there is no evidence of an intent to require both signatures as a condition precedent to it becoming effective as a contract, signatures are not required in the making of a valid contract.

The FLSA claims was covered by the broad arbitration provision at issue:

[T]he parties further mutually agree that final and binding arbitration shall be the sole and exclusive means of resolving all disputes . . . related in any way to the employment relationship between the Employer and Employee, conditions of employment, . . . violation of any public policy, or any federal, state, or local law. . .regardless of whether such claims are asserted by the Employer or Employee.

The conventional wisdom has always been that arbitration favors the employer by taking the jury component out of the picture and keeps attorneys' fees and costs down.  With employment related lawsuits up, we're sure to see more motions to compel arbitration. 

Once an arbitrator or arbitration panel rules, it is difficult if not impossible to have a Court overturn the ruling.  The Fifth Circuit Court of Appeals recently ruled that "manifest disregard for the law" is "no longer useful in actions to vacate arbitration awards."  There is a split amongst the circuit courts as to whether the theory is viable. 

There are four avenues under §10 of the Federal Arbitration Act to challenge an award.  The party challenging the award must show:

1. The award was procured by corruption, fraud or undue means;
2. There was evident partiality or corruption by the arbitrators;
3. The arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
4. The arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made.

Good luck overturning an adverse ruling.  Unless you can show your arbitrator was a crook, you're probably out of luck.

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