Broker Update

Posted on June 10, 2013 by Rob Radcliff

Though there are not many broker/dealer defections in the news, movement within the the broker/dealer business continues.  Merrill Lynch recently nabbed several professionals from Wells Fargo and Morgan Stanley.   Though movement does not seems to be as prevalent as several years ago, it continues. Considerations for making a move remain the same.  When considering a move, registered representatives must consider the following:

  1. Is the current employer is a signatory to the broker protocol?; and
  2. Is the prospective employer a signatory as well?

We've previously discussed the ramifications of the protocol and real world application.  In sum - If the move is between two signatories to the protocol the representative usually has nothing to worry about. However, if the move is between two companies where one is not a signatory the broker could find themselves in the middle of a non-compete or non-solicit dispute.

Increasingly, we are seeing companies use garden leave policies to protect their businesses. Essentially these types of policies provide the employee with paid leave in between jobs. The effect of the garden leave policy is to put the employee out of business and disrupt their ability to transition any business to a new employer or company. These can be very effective.  The professional gets paid for a few months but loses the ability to transition their business.

No Texas court has addressed the enforceability of such provision, but it is likely the provision will have to pass muster under the non-compete statute.  Eventually one of these provisions will be tested in some industry but for now there is no guidance in terms of cases.  When considering making any type of move, consultant a lawyer familiar with these types of issues.  

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Adding to the Employer's Arsenal - Garden Leave

Posted on April 5, 2011 by Rob Radcliff

                                        

Another strategy employers use to prevent employees from walking away with customers, proprietary information, and trade secrets, is the use of a “garden leave” provision in the  employment agreement. Basically, the provision works like this: the employee agrees that they have to provide three weeks notice of their intent to go and work for a new employer. Most clauses then allow for the employee to essentially quit working, but remain on the payroll of the employer during this “transition period.”


The effect of this provision is to prevent the overnight departure of business and proprietary information.  If followed by the employee, the employer can contact clients and address the situation.  Breach of such a provision could in some instances serve as an additional basis for a temporary restraining order.

Garden Leave provisions coupled with non-solicitation agreements, non-compete agreements and anti-raid provisions can be effective. These types of  provisions are appearing more often in the broker/securities business and trace their origins to Europe where they are commonly used. Employers should confirm that any provision is enforceable under applicable state law. Similarly, employees should be very careful before they sign any type of agreement along these lines.
 

 

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