In a FINRA Arbitration Statement of Claim filed in October 2011, Claimant Merrill Lynch asserted the following causes of action:
Okay so, Claimant Merrill Lynch is hot on the trail of its former employee Respondent Stillman, and from the looks of the six counts, there's quite a bit of bad blood here. Sillman's new employer, U.S. Bancorp, also got dragged into this dispute; and, for good measure, Claimant Merrill wants to permanently enjoin Respondent Sillman from using information that he allegedly culled from the firm's records. In the Matter of the FINRA Arbitration Between Merrill Lynch, Pierce, Fenner & Smith Incorporated, Claimant, vs. U.S. Bancorp Investments, Inc. and Chad Roy Sillman, Respondents (FINRA Arbitration 11-04123, December 16, 2011).
Respondents generally denied the allegations and asserted various affirmative defenses.
The FINRA Arbitration Panel partially granted Claimant Merill Lynch's request for a permanent injunction by enjoining Respondent Sillman from soliciting former Merrill Lynch clients until October 21, 2012; however, the Panel added that nothing in its injunction should be deemed to prevent Sillman from advertising or mailing tombstone ads which are not targeted to individual clients of Merrill Lynch which he serviced.
Among the more frequent questions that I get asked by registered persons planning on leaving their employment is "What can they do to me?" This case sort of answers the query - both in terms of what a former employer can try to do and in terms of the difficulties of achieving that wish list.
Frankly, whether you are employed at Merrill Lynch, Morgan Stanley, JP Morgan, Citigroup, or any major firm, the possibilities of post-employment litigation aren't all that different. A key issue is whether your employment was governed by a written agreement, and, whether that agreement, among other provisions, imposed a post-employment Non-Solicitation and/or Non-Compete (two different restrictions). In the absence of such a written agreement and provisions, you may still find that courts and arbitration panels will impose restrictions upon your efforts to take clients that you served at your former employer (or recruit away employees). Sometimes, the resolution of the dispute revolves more around nuance than substance.
In this arbitration, for example, the FINRA Arbitration Decision fails to satisfactorily inform us as to whether Respondent Sillman had a written, executed employment agreement with Claimant Merrill Lynch, and further fails to clarify whether he was subject to a non-solicitation clause. All of which would have made the case more understandable.
In the absence of such guidance, let's simply look at what the Panel awarded and what it didn't. Did Claimant Merrill Lynch seek to enjoin Respondent Sillman from "stealing" its clients? To some extent "Yes." Notwithstanding, no brokerage firm technically "owns" its clients - those customers are free to move their business as they desire. Consequently, the issue in this case is more properly framed as whether Respondent Sillman would be permitted to "solicit" clients that he serviced at his former employer (or whose names became known to him as a result of that affiliation).
In this arbitration, the Panel permanently enjoined Respondent Sillman from soliciting former Merrill Lynch clients until October 21, 2012. That's a victory for Merrill - but it's also a qualified one. To the extent solicitation means acts by Stillman that constitute an attempt by him directly contact a former client and instigate the transfer of his or her business, that's a no-no for much of 2012.
On the other hand, Merrill's victory is constrained. The FINRA Panel noted that "solicitation" does not extend to Respondent Sillman's use of generic marketing in the form of tombstone announcements, which are not targeted to individual clients of Merrill Lynch which Sillman serviced. If Sillman's wants to plaster announcements of his new job at his new employer in the local newspapers, on radio and television, and online - as long as it's essentially in the form of a tombstone announcement, he's free and clear of the injunction.
Finally, although the Panel rendered its ruling after a contested arbitration, which entailed time delays and legal costs to Sillman, there are still lessons to be learned for other wannabe "former" employees that could prevent such obstacles.
First, to the extent that you can leave without ruffling feathers and provoking retaliation, that's always smart. Do all the mumbling and cursing under your breath as you exit your branch office - just don't make it personal and loud.
Second, there are ways in which you may properly let your clients know that you are leaving, that you've left, and that you are available to handle their business. Not every "communication" between a stockbroker and a customer rises to the level of a "solicitation." Sometimes, simply letting a client know that you are leaving may be enough to set in motion the client's desire to go with you - you don't need to solicit that decision.
Finally, before you leave, make sure that your exit strategy has been worked out with and approved by your new employer. Learn what communications that they will approve (if not draft for you), and whether they are prepared to financially back you in the event that your former employer comes after you in court or arbitration.