Typically, traders and investment managers sign a variety of employer agreements when they come onboard with a new firm, including non-solicitation, non-compete and non-disclosure agreements. While these employer agreements detail such things as compensation and bonus, they also address confidentiality of client lists, dispute resolution, arbitration provisions and more. The agreements are, generally speaking, considered a given in the industry, but that doesn't mean you should automatically accept them without reading the fine print.
According to Scott Oswald, managing principal at The Employment Law Group law firm, non-solicitation, non-disclosure and non-compete agreements will always be around, in some fashion. But depending on the state where the agreement is negotiated, if the language of any provision is too broad or considered "overreaching" or where it unreasonably impedes a professional's ability to make a living in his or her chosen field, then the agreement can be unenforceable.
He tells eFinancialCareers that "if the provisions in the agreement somehow restrict someone from cooperating with securities regulators, for instance, then that's an obvious violation and that often makes the restrictive covenant void as a matter of a public policy."
The Reality of Contracts
Oswald does note that non-solicitation agreements often are enforceable to stop an investment manager from jumping ship and actively and aggressively soliciting their entire client list from their old employer. But it might not stop that investment manager from sending out an announcement of their new job and the customer reaching out to that person. Financial industry rules void any provision in a post-employment agreement between a financial firm and a registered investment manager that purports to prohibit a customer from continuing to use the services of that investment manager, if the investment manager moves from one registered financial firm to another.
However, Oswald says that there are still many gray areas, and professionals need to be careful not to violate their agreements. One verboten thing just may be adding a former client as a contact on social media sites to solicit the client's business, especially when the announcements and updates mention specific and key developments at your firm and not just your personal information. That could be construed as solicitation. "Social media is new terrain on which the courts are still divided," says Oswald.
Dodd-Frank & Non-Disclosure
There may be a bit of a sea change ahead when it comes to non-disclosure agreements. Employees of broker-dealers are required to let FINRA handle employment, compensation, discrimination and wrongful termination disputes via an arbitration process. But in the wake of Dodd-Frank, these forced arbitration agreements and the private adjudication provisions that follow are now sometimes null and void. The new whistleblower provisions of Dodd-Frank are meant to discourage retaliation by employers by giving the employee the option to bring his case in a public form: a United States federal court. "That's why Congress has rendered void all forced arbitration provisions contained in pre-dispute arbitration agreements where the financial professional seeks to vindicate his or her rights under the anti-retaliation provision of the Sarbanes Oxley or Dodd Frank Acts," says Oswald.
The whistleblower provision-Section 922 of Dodd-Frank-gives a potentially substantial reward to whistleblowers who provide the SEC with information regarding the firm's securities violations. The whistleblower can remain anonymous, and the SEC can award between 10 to 30 percent of the money the government recovers from a successful SEC action when--combined with other related civil, criminal or regulatory actions--the recovery totals more than $1 million. The SEC's Office of the Whistleblower opened its doors formally in July. Oswald says that financial industry whistleblower claims are beginning to trickle in to the SEC. However, he says he doesn't believe that any of those claims have yet to be resolved or paid out to the whistleblowers.
As employers consider the new whistleblower provision, banks and financial firms just may weaken or drop some of the expected provisions in employment contracts. "Most firms don't relish the idea of close scrutiny of their practices that any sort of contract dispute might bring," notes Oswald. As a result, he predicts that firms may refrain from enforcing non-competition agreements when they consider the specter of potential counterclaims for wrongful termination in violation of the anti-retaliation provisions contained in the Sarbanes Oxley Act and the relatively new Dodd Frank Act. "Firms are going to be much more circumspect before they sue on these agreements in light of the real possibility of receiving counterclaims in return that may enumerate a whole host of securities violations," says Oswald.