Employment Contracts and Separation Agreements

Our colleagues at Epstein Becker Green have released a Take 5 newsletter focused on the financial services industry.  Following are the introduction and links to the stories:

For this edition of the Take 5 for financial services, we focus on a number of very well-publicized issues. The tidal wave of sexual harassment allegations that followed the Harvey Weinstein revelations has drawn the attention of companies, their human resources departments, and employment lawyers. The rule on chief executive officer (“CEO”) pay ratio disclosure, which goes into effect in 2018, is a required focal point that garners significant interest in an industry that is all about money. The hyper-charged political climate has brought social activism and heated political discussions into the workplace with increasing frequency—and with potential employment law implications. A heightened legislative focus on eliminating at least one recognized source of the gender pay gap has resulted in new rules that prohibit very common inquiries about past compensation during the interview process. Finally, data leaks are a mounting threat and cybersecurity is a growing concern throughout an industry that is saturated with the highly sensitive, and sometimes personal, financial information of its clients.

We address these important issues and what financial services employers should know about them:

  1. The Weinstein Effect: #MeToo Allegations in the Financial Services Industry
  2. CEO Pay Ratio: It’s Not Too Late to Calculate!
  3. Managing Employees’ Political and Social Activism in the Workplace
  4. Equal Pay Update: The New York City and California Salary History Inquiry Bans
  5. Insider Threats to Critical Financial Services Technologies and Trade Secrets Are Best Addressed Through a Formalized Vulnerability and Risk Assessment Process

Read the full Take 5 newsletter here and download the PDF.

Twice in the past two weeks, the Securities and Exchange Commission (“SEC” or “Commission”) issued a cease-and-desist order settling proceedings against companies for using confidentiality and waiver of claims provisions in employee separation or severance agreements that violate an SEC rule promulgated after passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The rule in question is designed to encourage and allow whistleblowers to freely disclose information to the SEC without impediments and ensure that they are (and remain) entitled to collect monetary incentive awards if the Commission determines that they are eligible for such awards. In both cases, the companies were required, as part of the settlement of claims without admission of liability, to take affirmative remedial actions and pay fines of hundreds of thousands of dollars as the result of fairly typical language in their separation agreements. In addition, the SEC has signaled that not only will it take action in response to separation agreements that may limit an employee’s ability to communicate with the SEC, but also it will oppose attempts by employers to limit an employee’s right to receive whistleblower incentive awards.

To read more, click here for our Act Now Advisory

Our colleague Peter A. Steinmeyer—co-leader of our Non-Competes, Unfair Competition, and Trade Secrets service team at Epstein Becker Green—has a Trade Secrets & Noncompete Blog post that will be of interest to many of our readers: “Ambiguous Allegations, Lack of Imminent Harm, and a Delay in Taking Action Doom Request for a Temporary Restraining Order.”

Following is an excerpt:

In Bridgeview Bank Group v. Meyer, the Illinois Appellate Court recently affirmed the denial of a temporary restraining order (“TRO”) against an individual who joined a competitor and then, among other things, allegedly violated contractual non-solicitation and confidentiality obligations. …

Practitioners can take several lessons from this case.  First, when it comes to requests for injunctive relief, time is of the essence.  Second, when drafting a complaint, even though a plaintiff must take care not to unwittingly publish trade secrets or other confidential information, enough detail must be provided to establish the necessary elements for injunctive relief.  Finally, to justify the powerful remedy of an injunction, the requesting party must be able to demonstrate imminent harm, and its claims must be supported by competent evidence.

Read the full post here.

Our colleague Lauri F. Rasnick put together “Five Documents That Financial Services Employers Should Revisit Now” in this month’s Take 5 newsletter.  Below is an excerpt:

With summer here, including its long days and blazing heat, many thoughts may turn to beaches, sunshine, and lazy afternoons. The summer may also be a good time for employers—especially those in the financial services sector—to take stock of some of their more important employment documents. In light of recent developments, this month’s Take 5 discusses five employment documents worth checking:

  1. Separation Agreements
  2. Promissory Notes
  3. Non-Solicitation Agreements
  4. Arbitration Agreements
  5. Reasonable Accommodation Policies

Read the full newsletter here.

Our colleague Lauri Rasnick, a Member of the Firm at Epstein Becker Green, wrote a Law360 article titled “Drafting Customer Nonsolicitation Provisions in NY.” (Read the full version – subscription required.)

Following is an excerpt:

A recent New York Appellate Division First Department decision, TBA Global LLC v. Proscenium Events LLC, et al., Index Nos. 10948, 651171/12, (1st Dept Feb. 5, 2014), may not answer all questions about drafting enforceable nonsolicitation provisions, but it does shed some light on the current state of New York law.

The Lower Court Decision

The case was brought by TBA Global LLC, a live events marketing company that arranges and produces live event programs and marketing presentations for companies and products, against three former employees and their new company. Each of the former employees was subject to a nonsolicitation contract. After they simultaneously resigned, the three former employees all began to immediately compete with TBA.

TBA’s complaint alleged that the former employees improperly set up the competing business while employed at TBA, and that they violated their restrictive covenants through their activities. On summary judgment, the trial court only considered the latter claim — whether the restrictive covenants at issue were enforceable as a matter of law.

Our colleague Amy B. Messigian at Epstein Becker Green recently posted “Supreme Court Decision Sets High Bar for Establishing Retaliation Claims Under Title VII” on the Health Employment and Labor blog, and we think financial services employers will be interested.

Following is an excerpt:

In University of Texas Southwestern Medical Center v. Nassar, one of two employment-related opinions issued on Monday by the Supreme Court, a narrow majority held that a retaliation claim brought under Title VII of the Civil Rights Act of 1964 must be proved according to a strict but for causation standard. Under such a standard, a plaintiff must present proof that “the unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer.”

The underlying facts of the Nassar case are somewhat complicated. The plaintiff, a medical doctor employed as a faculty member of the defendant medical center and staff physician for its affiliated hospital entity, resigned from the faculty claiming that the chief of infectious disease medicine at the medical center was biased against individuals of Middle Eastern heritage such as plaintiff. The hospital entity offered the plaintiff a full time position as staff physician, but later rescinded the offer after plaintiff’s former supervisor protested the job offer. The plaintiff sued, alleging that the medical center retaliated against him for his discrimination complaints by encouraging the hospital to rescind its job offer. A jury returned a verdict in the plaintiff’s favor and awarded more than $3 million in damages.

Read the full post here.

Allen B. Roberts, a Member of Firm in the Labor and Employment practice and co-chair of the firm’s Whistleblowing and Compliance Subpractice Group, in the New York office, wrote an article titled “Impact: Employers Brace for Change – Top 5 Issues Facing Businesses, as appeared in Insurance Advocate.”

Following is an excerpt:

By popular account, the Affordable Care Act (“ACA”) would preserve the base of insureds and extend health insurance coverage to as many as another 32 million Americans. That estimate could be wrong if ACA disrupts patterns and experience of spouse and dependent coverage on employer-paid policies. Much of the political and media comment has focused on mandates, exchanges, and reasons that employers may maneuver to satisfy requirements concerning employee coverage, or drop it completely. Left out of the discussion has been the cost of covering family members of employees and the opportunity to shift employer dollars away from spouse and dependent premiums and place more dollars in premiums for individual employees. If that happens, spouses and dependent children will receive insurance coverage under employer-provided plans only if their premiums are paid by the employee, a household member, or some third party. Otherwise, those family members must obtain insurance elsewhere or join the ranks of the uninsured, something that might have been unimaginable for many of them—and perhaps for advocates of ACA who have considered it a move towards universal health care coverage.

Click here to read the article in its entirety.

The attached file is used by permission from Insurance Advocate – Vol. 124, No. 6 / March 18, 2013.

By: Lauri F. Rasnick

At our October 2012 client briefing we discussed the new attitude of the National Labor Relations Board (“NLRB”) and the fact that non-unionized employers were not immune from the provisions of the National Labor Relations Act (“NLRA”).  The NLRA has been increasingly applied in non-union workplaces.  And most recently, it has found its way into the financial services industry.  In a recent NLRB administrative law judge’s decision, provisions contained in a mortgage banker’s employment agreement were found violative of the NLRA.  The provisions at issue are fairly typical in financial firms’ agreements – confidentiality and proprietary information and non-disparagement.  These are the types of provisions commonly employed to protect a company’s valuable assets and its reputation.  Our Advisory discusses the decision in depth and what it means for employers.

Read the full version on ebglaw.com.

The April issue of “Take 5: Views You Can Use,” written by David W. Garland, a Member of the Firm in Epstein Becker Green’s New York and Newark  Offices, David W. Garlanddiscusses a number of topics relevant to employment in the financial services industry.   In these times of continuing downsizing at many financial services firms, we particularly recommend the discussions of the EEOC’s amended rules governing the defenses to disparate impact claims based on age, and a recent case regarding the application of Title VII to the provision of severance benefits.  The April 2012 issue also covers employer requests for access to employee Facebook accounts, a new EEOC publication on the rights of disabled veterans returning to the civilian workforce, and challenges to the use of unpaid interns.
 
Click here (PDF) to  read the April issue of ‘Take 5.”
 
 
  

By:  John F. Fullerton III

The New York Court of Appeals recently upheld a jury verdict in favor of a brokerage firm employee who claimed that his employer breached an oral promise (and violated New York wage law) when it failed to pay him a guaranteed bonus of $175,000, to be paid at the end of his first year of employment.  The discussions with the hiring manager regarding compensation were not put in writing.  Nevertheless, the employee subsequently signed an acknowledgment in the formal employment application that  “compensation and benefits are at will and can be terminated, with or without cause or notice, at any time” at the discretion of the employer or the employee.  He was discharged after less than two years of employment, and had not been paid the full $175,000 he claimed to be owed.

 

After a jury found for the employee and the intermediate appellate court sustained the verdict in a 3-2 decision, the employer appealed to the top court.  To be clear, the employer denied having made any such oral promise, but the jury believed the employee, so the employer appealed as a matter of law based on, among other things, the at-will language in its employment application, arguing that all compensation, including bonuses, was discretionary.  The Court noted that the at-will language was silent as to bonuses, and unanimously held that the oral promise of a guaranteed bonus made at the outset of employment was contractually enforceable and had vested as wages.  Thus, while the employer maintained the right to change compensation going forward, its at-will language did not bar recovery on the breach of contract and wage law claims for compensation allegedly due and owing. The case is called Ryan v. Kellogg Partners Institutional Services (pdf) and is a worthwhile read, particularly for the way it distinguishes the New York case law employers routinely rely upon to support the position that discretionary bonuses do not constitute “wages.”

At first blush, it is difficult to believe that a sophisticated broker would fail to get a six-figure guaranteed bonus in writing, or that an employer would even make such an expensive promise without memorializing it.  But maybe it is not so unusual. As Bill Singer notes in his take on the case in his Street Sweeper blog for Forbes.com:

Another odd thing about life on Wall Street. You got lots of high-powered, Type A personalities. Many of them don’t like lawyers . . . You talk to these wheelers, dealers, and traders and they tell you that on the Street, it’s all done by a handshake. Your word is your bond. . . .Which might explain why sometimes there isn’t a contract or written agreement.  After some 30 years in the biz, that cavalier attitude still surprises me.

On the other hand, isn’t that what written at-will disclaimers in the hiring documentation are for:  to make clear that any alleged oral promise of some “guaranteed” term or condition of employment – be it duration of employment or a specific bonus amount – cannot create a legally binding contract?  But here, the Court rejected the application of the employer’s fairly standard at-will language to a non-discretionary bonus allegedly promised at the time of hire. The takeaway from the case, then, seems to be:  either emphasize and re-emphasize to your business-side clients that they should reduce all aspects of every compensation agreement to writing; or, beef up the at-will language in your employment applications, offer letters, and employee handbook to make clear that any supposed oral agreements to pay non-discretionary compensation are superseded by the written documentation, and make sure it is signed by the employee.

One final note about the case that jumps right off the page:

Kellogg had to file a form U5 for Ryan after his termination from employment, meaning that he was registered with FINRA:  so what was this case doing in court, rather than in arbitration at FINRA?  It turns out that after Ryan filed his claims in court, Kellogg did not move promptly to compel arbitration.  Instead, an intermediate appeals court held, it “waived any right to arbitration by failing to raise it as a defense in its answer, asserting counterclaims, making a dispositive motion, and otherwise actively participating in this litigation for almost three years through the completion of extensive disclosure proceedings . . . all to the prejudice of plaintiff.”

Perhaps, despite the outcome, most employers would have felt that their chances in a case like this were better in court in any event.  But it does highlight the need for the employer to act quickly if it would prefer to arbitrate.  For a great discussion of the pros and cons of deciding whether to compel arbitration, see the piece Dena Narbaitz has posted here.