FINRA Arbitrators Award Severance to Former Barclays Employee

May 13, 2020

As the pandemic sweeps across the financial services industry, trading floors are eerily quiet, desks are bereft of men and women, offices are darkened -- and much of what passes for doing business is conducted from home. In a recent FINRA Intra-Industry Arbitration case, we see the shadow of COVID cast a long and dark presence over our industry. We have a former Barclays derivatives trader with a nearly 16-months-old employment dispute waiting to be heard by FINRA arbitrators. We have an arbitration hearing conducted by ZOOM.

Case In Point

In a FINRA Arbitration Statement of Claim filed in January 2019, associated person Claimant Mehotra asserted

breach of contract (for bonus);
breach of implied covenant of good faith and fair dealing;
violation of New York Labor Law (for bonus and deferred compensation);
severance;
quantum meruit;
unjust enrichment / restitution; and
promissory estoppel.

Claimant Mehotra sought $5 million for his 2018 bonus, $200,000 in severance; $5 million in liquidated damages, and a declaration that he was "entitled to and shall vest in and receive all of his deferred compensation (and any service credits under Barclays' Cash Value Plan)." Respondent Barclays generally denied the allegations and asserted various affirmative defenses. In the Matter of the Arbitration Between Amit Mehotra, Claimant, v. Barclays Capital Inc., Respondent (FINRA Arbitration Decision 19-00077)

https://www.finra.org/sites/default/files/aao_documents/19-00077.pdf

Pandemic ZOOM Hearing

In light of the ongoing COVID pandemic, the April 21, 2020 FINRA arbitration hearing was held virtually via ZOOM on mutual consent with parties, counsel, and arbitrators at differing locations.

SIDE BAR:

FINRA Baseball Caps, Rice Krispies Treats, Hiring Spree, And ZOOM OTRs (BrokeAndBroker.com Blog / May 1, 2020)
http://www.brokeandbroker.com/5197/FINRA-Zoom-OTR/

Personal note from Bill Singer -- Not the time for FINRA to ZOOM through witnesses' rights (Securities Industry Commentator / April 7, 2020)
http://www.rrbdlaw.com/5153/securities-industry-commentator/#zoom

Award

The FINRA Arbitration Panel found Respondent Barclays liable and ordered the firm to pay to Claimant Mehotra $200,000 in severance.

Bill Singer's Comment

Online FINRA BrokerCheck records as of May 13, 2020, disclose that Mehotra was first registered in 1999 with Lehman Brothers, Inc., where he remained until September 2008, at which time he was registered wtih Barclays Capital Inc. until December 2018. There are no customer complaint or regulatory disclosures on his record. He is a 19-year industry veteran with a spotless history.

A somewhat odd aspect of this FINRA Arbitration Decision is that it renders an "Arbitrators' Explanation of Decision" but makes no reference to FINRA Code of Arbitration Procedure for Industry Disputes Rule 13904: Award, which in part provides under (g) Explained Decisions for the issuance of same in response to a joint request by all parties. Given the contentious history attendant to the lack of an explained decision as FINRA's default protocol for both intra-industry and customer arbitrations, FINRA should ensure the presence in any pertinent Decision of a disclosure noting that an Explained Decision is being published pursuant to requests from all parties in accordance with the requirements set forth in the FINRA Code of Arbitration. READ the BrokeAndBroker Blog "Explained Decision" archive http://www.brokeandbroker.com/index.php?a=topic&topic=explained-decision

Notwithstanding the above procedural quibble, I compliment the Mehotra Panel for drafting a very compelling Explained Decision replete with adequate content and context. As noted in the explanation, the arbitrators found that Claimant Mehotra had failed to state a claim for all but one of his seven causes of action. As such, the Award is solely premised upon the Panel's finding on the fourth cause of action for severance.

A particularly interesting analysis in the Explained Decision is that "Severance of an employee of long standing terminated on a restructuring of the business and not for cause is standard practice." That's a very provocative finding in these pandemic times -- particularly given the likelihood that many industry associated person will be terminated as the economy continues to struggle and Wall Street labors under the strain. Not stated by the arbitrators is what would be deemed a "standard" severance payment or package. Of course, that's typically what prompts so many termination lawsuits. Regardless, when you are negotiating your exit package and you're an at-will-employee with no written agreement addressing severance, please keep this case in mind. Be careful -- very careful -- to note that the arbitrators never set out a formula of one week for every year in service or X% of annual compensation. The Devil is always in such details.

Similarly, the Panel's declination of an award of attorneys' fees to the prevailing Claimant should serve to underscore that such recompense is not automatically rendered in each and every intra-industry case. Don't underestimate that outcome because someone is going to have to pay the legal bill for Claimant's arbitration -- and assuming that "someone" is Mehotra, I doubt that a lot of his $200,000 severance award will remain after deductions for his legal fees, costs, and expenses. If the case was handled on a contingency basis of one-third, that means the law firm's recovery would be about $66, 667 exclusive of recoverable costs and fees.

ARBITRATORS' EXPLANATION OF DECISION

Claimant asserts seven causes of action as follows: breach of contract for bonus (first cause); breach of implied covenant of good faith and fair dealing (second cause); violation of New York Labor Law for bonus and deferred compensation (third cause); severance (fourth cause); quantum meruit (fifth cause), unjust enrichment/restitution (sixth cause); and promissory estoppel (seventh cause).

The Panel has taken careful note of the proof and the law, and concludes that Claimant fails to state a claim with respect to the first, second, third, fifth, sixth, and seventh causes of action. Therefore, these claims are denied. Claimant's claim for severance asserted in the fourth cause of action is granted.

The Panel finds in specific that the parties entered into a written agreement dated September 29, 2008 for at-will employment. It expressly states the terms of Claimant's employment with regard to compensation and guaranteed cash bonus for the year 2008. Following the opening paragraphs, the agreement continues on the subject of future bonuses. It expressly states: "It is understood that you must be an employee of good standing at the time the payments are due in order to receive them. Future bonus payments will be discretionary unless expressly stated otherwise in accordance with Barclays practice." The employment agreement also contains an integration clause. The proof established that the employment agreement was at no time amended or modified and is thereby enforceable against Claimant.

Claimant does not contest that Respondent was within its right to terminate him, but claims he is entitled to a 2018 incentive bonus award based on his performance. Since there is an express contract that specifically addresses the issue of future bonus, Claimant contended that he had a separate breach of contract claim based on an implied contract which he contended is evidenced by a course of conduct for such bonuses over a ten year period. Further, Claimant claims the amount of the incentive award should be based on a formula of bonus to production representing his annual experience.

As a general rule, "[a]n implied contract arises in the absence of an express agreement." Berardi v. Fundamental Brokers, Inc. Fundamental Brokers, Inc., 1990 U.S. Dist. LEXIS 11388 (S.D.N.Y. Aug. 30, 1990), at pg. 8, a case cited by Claimant. The I Court continues in footnote 9 that "an implied contract cannot co-exist with an express agreement." The cases Claimant relied upon address the issue of arbitrary withholding of bonuses where the claim is based on oral agreements. This is not such a case. The existence of an express agreement inconsistent with the theories advanced is fatal to Claimant's contract, quasi-contract, and equitable claims, and they are denied.

With respect to the third cause of action for alleged violation of New York Labor Law, Claimant was employed as a high risk derivatives trader whose compensation was structured in accordance with U.K. law to include what is termed a "role based pay". Respondent offered testimonial proof that Respondent was a U.K. banking entity subject to certain compensation laws imposed on U.K. banks based on a trader's role. Claimant received a base salary, plus an "additional fixed payment", as well as the "role based pay". The role based pay was disproportionately higher than the base amounts by a factor of six. The Panel finds that Respondent did not act unlawfully in deciding not to pay a bonus. The decision was consistent with the terms of the employment agreement, namely that "[f]uture bonus payments will be discretionary unless expressly stated otherwise in accordance with Barclays practice" and that to be entitled to a bonus the employee must be "in good standing at the time the payments are due in order to receive them." The Panel finds that the incentive bonus was discretionary and not a right, and for this reason did not constitute "wages" as that term is defined in New York Labor Law.

As to the fourth cause of action, the Panel finds that Claimant is entitled to severance, notwithstanding Claimant's contention expressed in this arbitration that he was unlawfully deprived of a bonus based on performance for the year of termination. Severance of an employee of long standing terminated on a restructuring of the business and not for cause is standard practice. Accordingly, Claimant's claim for severance is granted in the amount of $200,000.00 less required withholding payroll taxes and other applicable deductions, without prejudgment interest.

At the conclusion of their closing arguments, both parties requested attorney's fees, but Claimant's request was limited to his claim of violation under Labor Law §198. Under the American Rule, attorneys' fees may be shifted if agreed upon by contract or by statute. There is no contract for prevailing party attorneys' fees in this case. Respondent's argument that it is entitled to attorneys' fees if requested by both parties is unavailing since Claimant specifically limited its request to a statutory right and not generally on the other causes. Accordingly, Respondent's request for attorneys' fees as prevailing party on the first, second, third, fifth, sixth, and seventh cause of action is denied. Claimant has no contract basis for attorneys' fees on the fourth cause of action and his request is also denied.