Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Langley Weinstein LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

Earlier in the week we discussed policies and procedures that should be in place to deal with end of year employee departures. Companies should also consider a number of other HR related issues as the year draws to a close. Here are my thoughts:

1. Evaluation of all employment policies, including the employee handbook;
2. A review of all federal and state law changes that may impact employment practices - talk to your lawyer;
3.  A review of all employment contracts;  
4. A review of all employment files - are they up to snuff?; and
5. An evaluation as to whether the company should adopt post-employment covenants including non-competes, non-solicitations, and garden leave policies.

Now is the time to make any necessary changes before the New Year begins. Let me know if you have any additions to the list.

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Over the last few weeks we’ve discussed some key components in employment contracts including venue and jury trial waivers. Another key provision is choice of law. As was discussed in the Sam Adams case, choice of law  was critical because it permitted the employer to pursue an action against a former employee for breach of a non-compete agreement which would not be enforceable in the state of California. In that case, there is both a venue and choice of law provision for Massachusetts. 

As with venue and jury trial waiver provisions, the choice of law should be tailored to circumstances of the agreement at hand. Many employers like to default to the choice of law where their headquarters is located or many times the state of Delaware (shareholder disputes are very difficult to prosecute in that jurisdiction), but that will not always make sense in an employee/employer relationship. 

Additionally, courts do not always enforce choice of law provisions and employers should consult with their attorneys to put themselves in the best position contractually to enforce the provision. There is always a preference of the Court to enforce the contract based on laws of that jurisdiction because the judge is typically more familiar with those laws as opposed to some other jurisdiction. 

In the context of post-employment covenant litigation, there are certain jurisdictions state laws employers will want to avoid because they are not friendly to enforcement and vice versa. Employers need to be cognizant of the effect of a choice of law provision and also put some thought into its use because it will be an issue on down the road.

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We've previously discussed  the lucrative compensation packages wire houses use to attract high producing FAs.  The mechanics of those packages usually include a signing bonus, but it's not an up front bonus like the 1st round draft choice in the NFL draft receives.  In many instances it is a forgivable promissory note conditioned on the  broker staying a certain time period.  If they leave early the broker must pay it back.

Recently, Judge Lewis Kaplan of the Southern District of New York dismissed a group of former Citigroup brokers' lawsuit who left employment early and refused to pay off their loans.  Typically, breach of a promissory notes is almost impossible to defend.  It's a simple proposition, I loan you money you have to pay it back.

The Judge was not impressed with the Plaintiffs' case:

These plaintiffs all received substantial interest-free advances when they joined Smith Barney . . . They all promised to repay Smith Barney over terms of years out of their compensation and to repay any unpaid balance if they left the firm ‘for any reason or no reason.’ Having left the firm without repaying everything they owed, they brought this baseless lawsuit in what quite plainly was a studied effort to prevent collection of the debts they owed through the arbitration process.

Brokers should assume that if they are going to sign a note like this, they are going to have to pay it back unless they stay the term of their agreement.  

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Since my entry two weeks ago, New York Attorney General Andrew Cuomo chimed in again on Merrill Lynch 2008 bonuses in a letter (.pdf) to Congressman Barney Frank, Chairman of the House Committee on Financial Services.  The letter does not name names, but outlines numerous multi-million dollar payments to Merrill executives with the top 149 receiving approximately $858 million.  Stunning to say the least. 

 Cuomo attacks the timing and amount of the bonuses:

Rather, in a surprising fit of corporate irresponsibility, it appears that, instead of disclosing their bonus plans in a transparent way as requested by my Office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives. Merrill Lynch had never before awarded bonuses at such an early date and this timetable allowed Merrill to dole out huge bonuses ahead of their awful fourth quarter earnings announcement and before the planned takeover of Merrill by Bank of America.

Merrill Lynch's decision to secretly and prematurely award approximately $3.6 billion in bonuses, and Bank of America's apparent complicity in it, raise serious and disturbing questions.  By December 8, 2008, Merrill and presumably Bank of America must have been aware that the fourth quarter and yearly earnings results were disastrous.

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