Financial Advisors: Know Your Post-Employment Restrictions Before Making a Move

The enforcement of post-employment restrictions continues in the financial services industry. Advisor Hub recently reported that Merrill Lynch and its new advisor-employee were sued by Fidelity Brokerage Services. Fidelity sought to enjoin both Merrill Lynch and the advisor from continuing solicitation of customers by the advisor. The advisor’s employment contract with Fidelity contained a one-year post-employment non-solicitation restriction that Fidelity claimed he had violated. Fidelity withdrew the suit in exchange for the advisor’s agreement to cease soliciting Fidelity customers until June 2021–one year from commencing employment with Merrill Lynch. Further, the advisor must return to Fidelity all the information in his possession concerning current and prospective customers. Apparently, Fidelity learned from at least five clients that the advisor had solicited them. The matter will be adjudicated before a FINRA arbitration panel.

Advisor Hub also reported that in an unrelated case an advisor, prior to moving to another firm, copied confidential client information while working from home due to the pandemic.

Regardless of your industry, these cases highlight the fact that post-employment restrictions have meaning and will be enforced by employers. While the COVID-19 pandemic has impaired the ability of the courts and arbitration panels to address these matters on an accelerated basis, both cases illustrate that they remain enforceable. Neither employer nor employee can afford to ignore these restrictions. They deserve serious consideration BEFORE the commencement of new employment. Ill-conceived actions like those taken by the advisors in these cases will surely impede a smooth transition, which is certainly not the objective. The employee must not take chances that could expose both employee and employer to liability for violating enforceable contractual restrictions. The main takeaway is that best practices dictate the need to conduct careful due diligence. This includes assessing the treatment of post-employment restrictions in the statutes and case law of the governing law state.

Please feel free to call me at (212) 808-0700 ext.4335 or email dtharmon@norris-law.com if you have questions about this blog or post-employment restrictions, or if you are considering making a move. Likewise, I work with employers in the process of hiring prospective employees.