Terminated Representatives – How does the Protocol apply to them?

It’s Friday afternoon and your manager unexpectedly calls you into his office. When you get there, you’re surprised to find an HR representative is already there. Thus, begins any employee’s worst nightmare. You are being terminated and will be asked to leave the building immediately. Oh, and you will need to pay back that promissory note as well. For a representative subject to an employment agreement containing non-solicitation and confidentiality provisions, does the Protocol provide any protection in this situation?

The Protocol was drafted for the typical case in which a registered representative resigns from one firm to join another. It refers to movement from one firm to another and indicates that “resignations will be in writing.” When these cases go to FINRA arbitration, employers will sometimes claim that the Protocol does not apply because representatives may only take confidential information if they move to another Protocol member firm. However, a terminated employee usually does not have a new firm lined up yet.

From the perspective of the terminated employee, the most important issue is whether the representative can retain a client list and solicit those customers once he gets back on his feet. If the representative was moving to another Protocol member firm, a copy of the list would have been prepared in advance by the representative. If the terminated employee does not have such a list available, it may still be possible to develop a list from memory and public sources such as telephone directories.

If a list can be prepared, a terminated employee should consider sending a copy of the list to the former employer with a letter indicating that the representative plans to use this information for solicitation only in the event he or she becomes employed by a Protocol member firm. If the employer is unwilling to permit the representative to retain the information under these conditions, the employer might agree to provide the list in the event the representative becomes registered with a Protocol member firm. As in the case of a Protocol resignation, the employee should not retain any client information beyond that permitted under the Protocol. And no solicitation activities can take place until new employment is secured with a Protocol member firm.

Terminations of experienced representatives are fraught with danger for both the firm and the representative. On the one hand, the representative’s livelihood is put at risk. But the firm must also walk a fine line. While far from common, multi-million dollar awards have been rendered against firms for wrongful termination or defamation. A registered representative in this situation would be well advised to seek experienced legal counsel as soon as possible.

Author; Dennis J. Concilla

About the Author

Dennis J. Concilla

Dennis J. Concilla

"It's important that I know my client's business as well as they do."

Dennis Concilla practices securities law at Carlile Patchen & Murphy LLP, where he heads the firm's Securities Litigation and Regulation Practice Group. His focus is in the area of securities industry employment arbitration and regulation. Dennis joined CPM in April, 1985. He has been listed in Best Lawyers in America® for several years and The Securities Law Practice Group recently received a top tier ranking from Best Lawyers in America®.

Dennis served as Legal Counsel to the Ohio Senate Majority, was District Director of the 12th Ohio Congressional District, and is a former Assistant Attorney General for Ohio. Dennis served as an arbitrator for the National Association of Securities Dealers and has appeared before FINRA, its predecessors, the NASD and New York Stock Exchange, the Commodities and Futures Trading Commission, the Securities and Exchange Commission, and the Ohio Division of Securities.

Dennis has spoken at NASD sponsored arbitrator training seminars throughout the Eastern United States and has been a presenter at the Ohio Division of Securities annual conference. Dennis has been featured as a securities litigation instructor for Continuing Legal Education seminars sponsored by the Columbus, Cleveland and Ohio State Bar Associations and has been a speaker at CLE seminars on Restrictive Covenants & Ohio Administrative proceedings.

Dennis is a member of the Securities Industry and Financial Markets Association, Compliance and Law Division, and the Ohio State, and Columbus Bar Associations.