RRBDLAW.COM -- 917-520-2836 -- EMPLOYMENT AGREEMENTS AND RESTRICTIVE COVENANTS

RRBDLAW.COM

EMPLOYMENT AGREEMENTS AND RESTRICTIVE COVENANTS

PART IV: TROS, INJUNCTIONS, AND OTHER NASTINESS

We've recently discussed the basic employment agreement and restrictive covenants, considered what we should and shouldn't do when we receive The Letter,but now we need to examine the guts of the entire issue: the Temporary Restraining Order (TRO), Preliminary Injunction(PrI), and Permanent Injunction.

FPRACTICE POINTER: Law School 101a
TEMPORARY RESTRAINING ORDER:A TRO is, first and foremost, temporary. For the purposes of this article, that means that it is issued with an expectation that there will be some relatively prompt upcoming hearing to determine how temporary. In legal parlance, we refer to TROs as ex parte orders;essentially, a court may grant the plaintiff's request for a TRO without prior notice to you and without a prior hearing.
To obtain a TRO, plaintiffs must generally demonstrate that they will suffer immediate and irreparable injury, loss or damage unless the defendant is restrained. The TRO will be forwarded to you and will note a date for the hearing of a request for a PrI(normally, at the earliest possible time). The issuance of TROs can occur prior to the service of a summons. Be aware that TROs are subject to different restrictions under different circumstances in different jurisdictions, particularly concerning labor disputes and governmental entities.

FPRACTICE POINTER: Law School 101b
PRELIMINARY INJUNCTION: This is a court order, obtainable only after the summons is served and only on notice to the adverse party(s). The purpose of this injunction is to prevent irreparable injury to the plaintiff prior to the issuance of a final judgment.
PrI's are usually granted upon a showing of either:
a) the subject of the action is in jeopardy, that is, the defendant is
(i) doing or threatening to do something in violation of the plaintiff's rights at issue and
(ii) the consequence of which would be to render any judgment ineffectual or meaningless; or
b) the plaintiff is ultimately seeking a permanent injunction.
In seeking a PrI, plaintiffs must normally show
1. Likelihood of success,
2. Irreparable injury (often described as an injury for which a mere monetary award would be inadequate),
3. No adequate remedy at law (basically, there's no alternative other than the injunction), and
4. Equities are in plaintiff's favor (court's will not necessarily grant a PrI if to do so would cause significantly greater harm to the defendant than the denial would cause to plaintiff).

Your honor, even the broker agrees, this is open and shut.

If you review most employment agreements, you will find a provision that usually states:

In the event I breach any of the restrictive covenants, I agree that BD will be entitled to injunctive relief. I recognize that BD will suffer immediate and irreparable harm and that money damages will not be adequate to compensate it or to protect and preserve the status quo.

Okay all you would be lawyers, take a look at the discussion above about the requirements for the issuance of a TRO or PrI and figure out why the employment agreement includes the "I agree to injunctive relief" language. Eureka! Now all that legalese becomes crystal clear. In order to obtain either a TRO or PrI, your former employer cleverly had you admit to all the facts necessary to satisfy its burden.

What do they want from me?

When your former employer asks for a TRO or injunction, three basic orders are sought:

you will be askedto immediately return all records andenjoined from using or disclosing the information contained therein;

you will beenjoined or restrained from soliciting any accounts (such are usually defined as those customers you served or merely learned about during your tenure) for a period of time (frequently one year); and

you will beenjoined or restrained from accepting business from any accounts you wrongfully solicited in violation of the employment agreement or whose records/information you wrongfully used in violation of the employment agreement for a period of time (frequently one year).

It is critical that you fully familiarize yourself with the provisions of your employment agreement governing TROs and PrIs. Such provisions normally apply to all accounts you first opened while at your former BD. Similarly, they often pertain to individuals or entities whose names became known to you during your tenure, even if you didn't actually open an account or initiate business. What frequently shocks many RRs is that leads you developed before you arrived at the former BD, but whose accounts you opened during your tenure, are usually deemed the property of your former employer under the agreement. The most common exception is that you are normally permitted to solicit family/relatives accounts after your departure.

Hey, I'm now in Missouri, let that New York firm travel here to sue me

Seems like a good idea, might even act as a deterrent (given the costs and travel involved). However, once again, look for that paragraph in your employment agreement usually entitled "jurisdiction;" you know, the one that didn't make any sense when you signed the document. Most employment agreements include a provision wherein you agreed to submit to and actually conferred jurisdiction upon a federal or state court in the locale where you last worked for your former BD. So, your former employer might be able to require you to return to the proverbial scene of the crime. Now consider the costs and inconvenience to you.

How come my former employer isn't in a big rush to arbitrate?

Assuming that a court has issued a TRO or PrI, industry rules generally require that the actual case be litigated in accordance with applicable mandatory arbitration rules. Many RRs suddenly find that the speed with which their former employer rushed to court to enjoin solicitation is now inversely proportional to the speed with which that plaintiff now moves to have the case arbitrated. Similarly, the arbitration forum may be processing the case at an agonizingly slow pace.

Again, search through your employment agreement and you will likely find a paragraph stating that you agreed that the TRO/PrIshall stay in full force and effect until an arbitration panel renders a full and final decision. Re-read that carefully: until a full and final decision. That means until the case is scheduled, papers exchanged, witnesses heard, deliberations conducted, and the decision issued. That's not necessarily measured in weeks but could be months, many, many months.

FPRACTICE POINTER:
Courts frequently issue a TRO/PrI with the instruction that it will stay in place until such time as an arbitration panel determines otherwise, whether by ultimate decision or interim ruling. This is a major concession and should always be sought by an RR. The NASD's, NYSE's, or AAA's best intentions to the contrary, it always seems that your particular case hits some unanticipated snags and despite your lawyer's best guesstimate, you're effectively high and dry far longer than you expected. Often, by the time that you can return to production your accounts have long since evaporated.

I am in the process of assembling an online library of employment agreements and restrictive covenants. Please send me copies of such documents (feel free to delete your name if you so desire). Additionally, if you have been served with letters of complaint or pleadings, please include those. I will then assemble a free online library so that RRs may consult the agreements and better understand the differences among employers and within a given firm.

Send to: bsinger@singerfru.com

RRBDLAW.COM AND SECURITIES INDUSTRY COMMENTATOR™ © 2004 BILL SINGER

THIS WEBSITE MAY BE DEEMED AN ATTORNEY ADVERTISEMENT OR SOLICITATION IN SOME JURISDICTIONS. AS SUCH, PLEASE NOTE THAT THE HIRING OF AN ATTORNEY IS AN IMPORTANT DECISION THAT SHOULD NOT BE BASED SOLELY UPON ADVERTISEMENTS. MOREOVER, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. NEITHER THE TRANSMISSION NOR YOUR RECEIPT OF ANY CONTENT ON THIS WEBSITE WILL CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN THE SENDER AND RECEIVER. WEBSITE SUBSCRIBERS AND ONLINE READERS SHOULD NOT TAKE, OR REFRAIN FROM TAKING, ANY ACTION BASED UPON CONTENT ON THIS WEBSITE. THE CONTENT PUBLISHED ON THIS WEBSITE REPRESENTS THE PERSONAL VIEWS OF THE AUTHOR AND NOT NECESSARILY THE VIEWS OF ANY LAW FIRM OR ORGANIZATION WITH WHICH HE MAY BE AFFILIATED. ALL CONTENT IS PROVIDED AS GENERAL INFORMATION ONLY AND MUST NOT BE RELIED UPON AS LEGAL ADVICE. CONTENT ON THIS WEBSITE MAY BE INCORRECT FOR YOUR JURISDICTION AND THE UNDERLYING RULES, REGULATIONS AND/OR DECISIONS MAY NO LONGER BE CONTROLLING OR PERSUASIVE AS A MATTER OF LAW OR INTERPRETATION.

Telephone: 917-520-2836
Fax at 720-559-2800
E-mail to bsinger@rrbdlaw.com

FOR DETAILS ABOUT MR. SINGER, PLEASE READ HIS
ONLINE BIOGRAPHY