Posts tagged with "compensation"

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

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Lawrence R. Gilmore v. Scott T. Brandt, 2011 WL 5240421 (D. Colo. Oct. 31, 2011).

In a case before the United States District Court for the District of Colorado, Lawrence Gilmore (“Gilmore”) filed a motion to confirm the Financial Industry Regulatory Authority (“FINRA”) arbitration award in his favor, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Scott Brandt (“Brandt”) responded by filing a motion to vacate the FINRA award pursuant to the FAA, 9 U.S.C. § 10.  The court granted Gilmore’s motion to confirm the award, entered judgment for the award, and denied Brandt’s motion to vacate the award.

Case Details

The dispute underlying the FINRA arbitration began when Brandt, a representative of Lighthouse Capital Corporation, suggested that Gilmore invest $92,000 in Diversified Lending Group, Inc. (“DLG”).  Gilmore made the investment, which was quickly decimated.  Gilmore alleged that DLG was a Ponzi scheme and filed a Statement of Claim with FINRA.  Rather than seek a stay of arbitration, Brandt contested the issue of arbitrability by appending a statement of jurisdictional objection to his FINRA Arbitration Submission Agreement and raising jurisdictional objections throughout the arbitration proceedings.

FINRA appointed a panel of arbitrators to hear the matter, however, the arbitration panel did not directly address Brandt’s jurisdictional challenge.  In December 2010, the panel issued an arbitration award in Gilmore’s favor for compensatory damages of $106,024.68, post-judgment interest, and attorneys’ fees.

Arbitrability of a Dispute

In his motion for vacatur, Brandt argued that he never entered into an arbitration agreement with Gilmore; therefore, their dispute should not have been subjected to arbitration. The district court found that Brandt had sufficiently preserved his objection to arbitrability, and that it fell to the court to decide whether the dispute was in fact arbitrable.

Because arbitration is entirely a matter of contract, a party cannot be required to arbitrate a dispute that it has not agreed to submit to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995).  When Brandt first sought to be licensed to sell securities, he executed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”), which contained a section agreeing “to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA].”

The court determined that the agreement embodied in Brandt’s Form U-4 would constitute an agreement to arbitrate the dispute with Gilmore only if FINRA rules required this dispute to be arbitrated.

FINRA Rule 12200

FINRA Rule 12200 is a broad provision that generally applies to any customer dispute arising in connection with the business activities of a FINRA member.  Specifically, FINRA Rule 12200 requires that a dispute must be arbitrated under the FINRA Code of Arbitration Procedure if: (1) arbitration is required by written agreement or requested by a customer; (2) the dispute is between a customer and a FINRA member or associated person; and (3) the dispute arises in connection with the business activities of the FINRA member or associated person.

By submitting his Statement of Claim to FINRA for arbitration, Gilmore was clearly requesting arbitration of the dispute.  The district court found that Gilmore was in a customer relationship with Brandt because Brandt had induced him to invest in DLG.

The Court’s Decision

Additionally, the district court found that Gilmore’s claims related to Brandt’s recommendation of an investment in particular securities fell within the class of disputes reasonably regulated by FINRA.  Therefore, the district court determined that FINRA Rule 12200 required the dispute between Gilmore and Brandt be submitted to arbitration.  Because of this result, Brandt’s U-4 Form was determined to be his agreement to submit to arbitration of the dispute.

Because the arbitration panel had jurisdiction to decide the dispute, the award decision is entitled to deference by the federal court.  9 U.S.C. § 9-11.  Because Brandt provided no argument that satisfied the statutory grounds for vacatur of an arbitration award, 9 U.S.C. § 10(a), the court granted Gilmore’s motion for confirmation of the arbitration award of compensatory damages of $106,024.68, with interest, and attorneys’ fees.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya of Maya Murphy, P.C. in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Court Enforces Non-Compete Clause Against Real Estate Agent

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Century 21 Access America v. McGregor-Mclean, 2004 Conn. Super. LEXIS 3239

Century 21 Access America is a national real estate company that employed Ms. Tori McGregor-Mclean as a real estate agent in its Bridgeport, CT office from July 2003 to June 16, 2004.  Her employment contract, dated July 7, 2003, contained a non-compete clause that prohibited her for a two-year period following termination from engaging in competing business activities within a fifteen-mile radius of 3850 Main Street, Bridgeport, CT.  Ms. McGregor-Mclean voluntarily terminated her employment on June 16, 2004 and began to work for Buyer’s Capitol Real Estate, a company located outside of the fifteen-mile radius in Stamford, CT.

Century 21 did not have a problem with her new employment because the office was located outside of the prohibited area but issues arose when Ms. McGregor-Mclean began accepting listings within the fifteen-mile radius.  Century 21 sued Ms. McGregor-Mclean in Connecticut state court for violation of the non-compete clause and requested that the court issue an injunction to enforce the agreement.

The Court’s Decision

The court found that Ms. McGregor-Mclean’s activities with her new real estate agency were in fact violations of the non-compete agreement and it ordered that the provisions be enforced.  The plain language of the non-compete clause stipulated that Ms. McGregor-Mclean was prohibited from carrying out any direct or indirect competing business activities within the defined fifteen-mile radius.  She was in breach of the agreement because she accepted five listings within the prohibited area – it is inconsequential as a matter of law that her office was located outside of the fifteen-mile radius.

Under the agreement, she was prohibited from having a physical business presence and transacting individual deals within the defined area.  The court identified the unlawful breaches of the non-compete clause, concluded that the agreement was valid and reasonable, and issued an injunction to enjoin Ms. McGregor-Mclean from further violations of the covenant not to compete.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

ERISA Claim Challenges Vague Language of FINRA Arbitration Award in order to Include Back Pay as Benefits-Eligible Compensation

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Ronald A. Roganti  v .Metropolitan Life Insurance Company, et el, 2012 WL 2324476 (S.D.N.Y.  June 18, 2012)

In a case before the Southern District of New York, Ronald Roganti (“Roganti”), a former employee of the Metropolitan Life Insurance Company (“MetLife”), asserted claims under the Sarbanes–Oxley Act of 2002, 18 U.S.C. § 1514A (“SOX”), and the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 (“ERISA”). Both claims challenge MetLife’s denial of Roganti’s request that a 2010 Financial Industry Regulatory Authority (“FINRA”) arbitration award be treated as benefits-eligible compensation.  MetLife moved to dismiss both claims on several grounds.  The court granted MetLife’s motion with respect to the SOX claim and denied the motion with respect to the ERISA claim.

Case Background

The underlying dispute in this case arose during Roganti’s employment with MetLife, which lasted from 1971 to 2005.  In 1999, Roganti began to voice concerns regarding allegedly-suspect business practices at MetLife and continued to do so until he terminated his employment in 2005.   Roganti claimed that throughout that time period, MetLife repeatedly disregarded his complaints and actively retaliated against him, including undermining his authority within the business subsets he oversaw and reducing his compensation with the specific purpose of reducing his pension benefits.

In July 2004, Roganti filed his initial Statement of Claim with the National Association of Securities Dealers (“NASD”) to arbitrate his disputes with MetLife.  FINRA, the successor to NASD, appointed a panel of three arbitrators to adjudicate four claims brought by Roganti: (1) the breach of contract claim, based on MetLife’s reduction of Roganti’s compensation; (2) violation of SOX retaliation provisions, based on MetLife’s retaliation against Roganti for reporting questionable business practices; (3) for the value of services rendered by Roganti; and (4) for violating ERISA, on the theory that, in reducing Roganti’s compensation, MetLife also sought to reduce his pension benefits.

In August 2010, the FINRA panel held that MetLife was liable to Roganti for $2,492,442.07 in “compensatory damages … above [MetLife’s] existing pension and benefit obligation to Claimant.” The arbitral award explain neither how the arbitrators arrived at this sum nor for what the award was intended to compensate Roganti. FINRA Docket Number 04-04876.

Benefits Claim

On March 24, 2011, Roganti filed a benefits claim with MetLife, in its capacity as the Plan Administrator, asking that the arbitral award be treated as compensation for income which MetLife had improperly denied him, and that the award be factored into the calculation of the benefits which he was entitled to under his pension plan with MetLife. MetLife denied the request for three reasons.

First, only income of current employees was benefits-eligible; therefore, since Roganti was not employed by MetLife when he received the award, it did not qualify as benefits-eligible compensation.  Second, FINRA broadly termed the award as “compensatory damages” rather than stating it was compensation for lost income.  Finally, the FINRA award did not indicate to which years of Roganti’s employment the award applied; therefore, even if the award represented unpaid income, it would be impossible for MetLife to determine concretely how the award should affect Roganti’s pension benefits. Roganti appealed this decision to MetLife, and MetLife again denied his claim.  Subsequently, Roganti filed SOX and ERISA claims in federal district court.

Because Roganti’s current SOX and ERISA claims are based on the 2011 denial of pension benefits, the court determined that these have not already been dispositioned by the 2010 FINRA arbitration.  Therefore, the court denied MetLife’s motions to dismiss both claims on grounds of res judicata and collateral estoppel.  However, because Roganti did not exhaust administrative remedies before filing his SOX claim in federal district court, the court determined that his SOX claim must be dismissed.

ERISA Claims

Roganti made two claims under ERISA, which creates a private right of action to enforce the provisions of a retirement benefits plan. 29 U.S.C. § 1132(a)(1)(B).  First, he alleged that the FINRA arbitral award compensated him for unpaid wages that resulted from MetLife’s retaliation against him.  Second, he argued that because the award constituted back pay, it must be taken into account in calculating his pension benefits.  The court determined that central to both claims is the issue of whether the FINRA arbitration award constitutes back pay to compensate Roganti for services rendered while he was a MetLife employee, which would properly be included in pension benefits calculations.

The Court’s Decision

Neither the brevity of the FINRA arbitration award nor Roganti’s statement of claims to FINRA provided the court with sufficient clarity to resolve the factual issue of exactly what the award represented. The court, therefore, construed the ambiguity in the award language in the light most favorable to Roganti.  The court concluded that he had met his burden and denied MetLife’s motion to dismiss the ERISA claim.

Because the three-month timeframe to seek clarification from a FINRA arbitration panel pursuant to 9 U.S.C. § 12 had elapsed, the court ordered the ERISA Plan Director to closely review the arbitral record, in the context of the evidence offered and arguments made by both sides at the arbitration, to determine whether or not the award represented back pay for Roganti.  The court found it unacceptable that the initial denials of benefits were based on the terse language of the arbitration award, rather than a more detailed analysis as to what the award amounts represented.

Should you have any questions relating to FINRA, employment, compensation or benefits issues please do not hesitate to contact Attorney Joseph C. Maya of Maya Murphy, P.C. in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Gender Wage Gap in Connecticut

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The Gender Wage Gap Task Force in Connecticut issued its report last month with both findings and recommendations on continued disparities between what men and women, on average, earn. In doing so, it recognized that there are multiple factors that are responsible for the gap in its view. It paints a far more complicated picture of the wage gap than some politicians suggest. As it detailed:

Understanding this inequity is not a simple matter. Many factors contribute to the overall wage gap including education and skills, experience, union membership, training, performance, hours worked and the careers women and men choose. However, even after these factors are controlled for, an estimated wage gap of 5-10% remains. The task force has identified six key contributors to the gender wage gap in Connecticut: unconscious bias, occupational segregation, lower starting salaries and positions for women, women’s slower career advancement, the existence of a glass ceiling and a lack of support for working families.

Reasons for the Wage Disparity

Mara Lee, from the Hartford Courant, does a nice job recapping some of the key findings. Her take?

The report says that researchers have determined there are two reasons for that disparity: women don’t negotiate salary offers as often as men, and there may be subtle biases among bosses, even ones they don’t realize they have.

The report gives an example of a study of students graduating from Carnegie Mellon with master’s degrees, which found that 57 percent of men negotiated salary offers and 7 percent of women did. The men’s salaries were 7.6 percent higher than the women. And that $4,000 was almost the exact amount more that people who negotiated were paid compared to those who didn’t.

What might we see as a result of the report?

There are a number of recommendations, but surprisingly few of them touch on changes to the legal system.

First, it suggests that Connecticut “align” its Family Medical Leave Act with the federal Family Medical Leave Act by expanding it to include companies with 50 or more employees.

If the General Assembly does take that up, legislators should consider narrowing the differences between the two statutes. For example, Connecticut gives employees 16 weeks of leave over a 24 month period, instead of the federal 12 weeks of leave every twelve months, which can be confusing at times and leads to strange results that allow employees to get 16 weeks of leave the first year and then another 12 weeks during the second year — far more than just the 16 weeks first contemplated under Connecticut law.

The report also recommends supporting paid leave programs, like those in New Jersey and California. Connecticut is currently studying various proposals.

Employers in Connecticut should remain cognizant of both the issues that this report raises and the legislative developments that may arise from it as a result.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, place contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Contents provided by: Daniel Schwartz of http://www.ctemploymentlawblog.com/

Enforcing a Non-Compete Agreement to Protect Software Company’s Confidential Information

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Weseley Software Development Corporation v. Burdette, 977 F. Supp. 137

Mr. Wesley Burdette worked for Weseley Development Corporation first as a Logistics Analyst and then as a Senior Logistics Analyst from May 1993 to September 16, 1996.  Weseley was a software development company based in Shelton, Connecticut whose focus product was a transportation and logistics management program referred to as TRACS (Tactical Routing and Consolidation System).  Mr. Burdette played a significant role in the development and testing of TRACS versions 3.0 and 3.1.  He worked with “customers and potential customers to evaluate, develop, tailor, and implement Weseley’s products” during his approximately three years of employment.

He gave Weseley his two weeks notice on August 29, 1996 and planned to switch companies to work for Manugistics for the marketing and sales of its product titled MTP.  Management reminded Mr. Burdette of the non-compete clause in his employment agreement that he had signed.

The most important covenants that he signed in conjunction with his employment contract were those not to compete or disclose confidential information.  The agreement was signed on January 14, 1995 after Mr. Burdette was allowed time to consult with an attorney regarding any and all of the agreement’s provisions.  The non-compete clause stipulated that he could not work for a competitor for a period of six months following his termination with Weseley or disclose confidential information for an indefinite period of time.

The company sued Mr. Burdette to enforce the non-compete and asked the court to enjoin him from further employment with Manugistics.  Mr. Burdette countered that the agreement was unenforceable because its provisions were unreasonable and that Weseley had only signed the agreement once litigation began.

The Court’s Decision

The court found in favor of Weseley and enforced the non-compete covenant, enjoining Mr. Burdette from working for Manugistics for a period of six months as stated in the language of the agreement.  It validated the agreement because there was adequate consideration in the form of “continued employment, an articulated paid vacation entitlement, a new entitlement to severance benefits, and stock options”.  Furthermore, it found the limitations to be reasonable such that they fairly balanced Weseley’s desire to protect its business and Mr. Burdette’s desire to still be able to pursue his career.

It was paramount that the court protected the company’s interests since Mr. Burdette had a great deal of access to proprietary research & development information that could have severely disadvantaged Weseley should Mr. Burdette have shared the information with Manugistics.  Although the court stated that there was no evidence that he had already disclosed confidential information, it held that he would inadvertently draw upon his knowledge gained while employed at Weseley and eventually disclose some amount, however small it may be, in the course of his new employment with Manugistics.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

IRS 2014 Pension Plan Limitations

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On October 31, 2013, the IRS announced the following cost-of-living adjustments to certain dollar limitations applicable to employee pension benefit plans for 2014:

  • The annual benefit limit for defined benefit plans is increased from $205,000 to $210,000.
  • The annual addition limit for defined contribution plans is increased from $51,000 to $52,000.
  • The annual limit with respect to the exclusion for elective deferrals to a 401(k), 403(b) or 457 plan remains unchanged at $17,500.
  • The annual limit on annual contributions to an individual retirement account (“IRA”) remains unchanged at $5,500. The dollar limit for catch-up contributions to an IRA remains unchanged at $1,000.
  • The annual limit on compensation that can be taken into account under a qualified retirement plan is increased from $255,000 to $260,000.
  • The dollar limit for defining key employees in a top-heavy plan is increased from $165,000 to $170,000.
  • The dollar amount for determining the maximum account balance in an employee stock ownership plan (“ESOP”) subject to a five-year distribution period is increased from $1,035,000 to $1,050,000. The dollar amount used to determine the lengthening of the five-year distribution period is increased from $205,000 to $210,000.
  • The dollar limit for catch-up contributions for anyone 50 and older remains unchanged at $5,500, while the limit applicable to those participants under SIMPLE plans and SIMPLE IRAs remains unchanged at $2,500.
  • The limitation used in the definition of highly compensated employee remains unchanged at $115,000.

Employers who sponsor qualified retirement plans should review their administrative and payroll procedures to make sure the new limits are reflected as they must operate their plans in accordance with the new limits. The failure to do so could result in plan disqualification. Additionally, individual contributions that exceed the IRA limits may be subject to an excise tax.

Credit: Frank Rubinetti

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, place contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

IRS Issues Proposed Regulations on Dependent Care Expenses

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The IRS has issued proposed regulations under Internal Revenue Code (“Code”) 21 regarding dependent care assistance expenses. (Code Section 21 defines when a dependent care expense qualifies for the dependent care tax credit.) For Dependent Care Assistance Plan (“DCAP”) sponsors, these regulations are important because they provide much-needed clarity with respect to what constitutes a qualifying expense under a DCAP.

A dependent care assistance expense will qualify for reimbursement under a Dependent Care Assistance Plan (“DCAP”) if the expense meets the definition of an employment-related “dependent care assistance” expense under Code Section 21(b)(2). This requires, among other things, that the individual has an “employment-related” purpose in paying for the expense – in other words, the individual must incur the expense so that he or she can be gainfully employed.

Proposed Regulations

The highlights of the proposed regulations are as follows:

Pre-Kindergarten Programs, Nursery Schools, and Specialty Day Camps Qualify as Dependent Care Assistance Expenses

The expenses of pre-school and other pre-kindergarten programs now qualify as dependent care assistance expenses.

The cost of kindergarten, and other educational programs above the kindergarten level, may not be considered dependent care assistance expenses since such programs have an educational purpose. However, the cost of after-school programs for children above kindergarten age may qualify as a dependent-care assistance expense.

Day Camps/Specialty Day Camps. The full cost of day camps, including specialty day camps that specialize in one particular activity such as soccer or computers, now qualify as a dependent-care assistance expense. (Overnight camp expenses still do not qualify since they are not considered employment-related expenses.)

“Indirect Expenses,” Transportation Expenses, and a Caregiver’s Room and Board now qualify as dependent-care assistance expenses

Transportation Expenses – to and from a day camp or an after-school program not on school premises – now qualify as a dependent-care assistance expense.

“Indirect Expenses.” Indirect expenses are expenses that relate to, but are not directly for the care of a dependent. Examples of qualifying indirect expenses include application fees, agency fees, and deposits may qualify if they are paid to obtain care for the dependent. Let’s say Jane places a deposit with Pre-School A to reserve a place for her child and subsequently decides to send her child to a different pre-school. By doing this, Jane forfeits her deposit with Pre-School A. The forfeited deposit does not qualify as a dependent-care assistance expense.

Room and Board. The cost of providing room and board to a caregiver may be considered an employment-related expense and therefore qualify as a dependent-care assistance expense.

Payments to Most Relatives for “Dependent Care” Do Not Qualify as Dependent-Care Assistance Expenses

The proposed regulations clarify that an individual’s payments to his or her child, spouse, or the dependent child’s parent (who is not the individual’s spouse), do not qualify as a dependent-care assistance expense.

However, if an individual pays his parent to care for his dependent children, those payments may qualify as a dependent-care assistance expense as long as the parent cannot be characterized as the individual’s dependent under Code Section 151.

Temporary Absences and Part-Time Work

Expenses Incurred During a Temporary Absence May Qualify as a Dependent-Care Assistance Expense. Prior to the proposed regulations, this was not the case. However, under the proposed regulations, an expense may qualify as a dependent-care assistance expense even if it is incurred while the individual is temporarily absent from work, for example, due to vacation or sickness. Although the proposed regulations have not specified the maximum duration of the absence, in two examples they note that expenses incurred during a two-day absence will qualify while expenses incurred during a four-month absence will not.

Part-Time Employees

If the part-time employee is required to pay for dependent care on a periodic basis, such as weekly or monthly, which includes both worked days and non-worked days, the entire cost of day care may constitute a dependent-care assistance expense. If, however, the part-time employee pays for dependent care on a daily basis, he or she can treat as dependent-care assistance expenses only those expenses incurred while he or she was at work.

Credit: Stefanie Kastrinsky

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, place contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Application of FINRA Rules & Regulations for Bank’s Employment Agreement

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Webster Bank, N.A. v. Cahill, 2009 Conn. Super. LEXIS 1672

Webster Bank is a regional commercial bank with business operations in lower New England that employed Mr. Daniel Cahill from April 11, 1995 to February 12, 2009.  He was hired as a teller in the bank’s Bristol, CT office and was promoted to a financial consultant in 2001 to work for Webster Investment Services, the securities division of Webster Bank.  The bank entered into a corporate arrangement with UVEST in 2007 and Mr. Cahill (and similar employees) had to sign a dual employment agreement.

The contract detailed the terms of his employment and contained multiple restrictive covenants.  Mr. Cahill was prohibited from engaging in competing business activities within twenty-five miles of his base of operations for one year following his termination and was subject to an indefinite non-disclosure clause for Webster and UVEST’s confidential and proprietary information.

Mr. Cahill faxed in a letter of resignation to Webster on February 12, 2009 and the next day began working for RBC Bank in its Hartford, CT office where he essentially performed the same duties as he had done during his employment with Webster.  Webster sued Mr. Cahill in Connecticut state court for the enforcement of the restrictive covenants contained in the dual employment agreement.

Mr. Cahill admitted that RBC was a direct competitor of Webster, that his new office is within the twenty-five mile radius prohibited area, that he had taken with him a list of 2,900-3,000 Webster customers, and had sent a solicitation letter on RBC’s stationary to all of those customers.  Of these solicitations, 350-400 accounts transferred their assets to RBC, amounting to a loss of approximately $5 million in assets under management for Webster.

Employment Contract Violation

Mr. Cahill admitted that he violated the terms of the dual employment contract but argued that the court should not enforce the non-compete agreement because he was a “licensed and registered securities dealer and a financial representative”, and therefore the rules and regulations of Financial Industry Regulatory Authority (FINRA) governed and he had done nothing wrong.

He contended that under FINRA regulations, in an agreement referred to as the “Protocol”, he was permitted to take a copy of the customer list when he moved from Webster to RBC.  These regulations permit taking a copy of names, addresses, phone numbers, and email addresses but not account numbers.  The court found that the assertion lacked jurisdiction and was unpersuasive, and noted that FINRA was not controlling since neither Webster Bank nor UVEST were signatory members of the “Protocol”.

The court concluded that it did have jurisdiction over the case and next looked to whether the non-compete agreement was valid and enforceable under Connecticut law.  Webster had a legitimate business interest that the court held warranted protection in the form of an injunction to restrict Mr. Cahill’s activities.  An injunction, according to the court, was necessary to maintain the status quo and protect the interests of the parties involved in the legal dispute.  The court held that the restrictions were reasonable in scope and did not overtly favor one party over the other.  After establishing a need for an injunction and the reasonableness of the restrictions, the court ordered the enforcement of the non-compete agreement.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Form U5 – Employment Termination in the Securities Industry

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Broker-dealers, investment advisors, and issuers of securities routinely use Form U5 to terminate the registration of an individual whose employment has ended and to notify the appropriate jurisdiction or self-regulatory organization.  Employees are still subject to the jurisdiction of regulators for at least two years after the registration has been terminated and may have to provide information about the association with their former employer.  The section of Form U5 that may be the most problematic concerns the reason for the termination that must be provided by the employer.

Reason for Termination

If the employer elects to describe a full termination as “permitted to resign,” “discharged,” or “other,”, then an explanation must be provided.  No such explanation is necessary if the full termination is deemed “voluntary.”  Disclosure of the employee’s involvement in investigations, internal reviews, regulatory actions, criminal matters and customer complaints must also be made by the employer.

In many cases, an employer and employee may disagree on what led to an employment termination and on the circumstances of the departure.  A disparaging remark, untrue statement or misleading explanation on Form U5 can jeopardize the ability of an individual to continue working in the securities industry.  A prospective employer may pass over a job candidate who has what has come to be known as a “Dirty U5” from a previous employer.

Dirty U5s

The Financial Industry Regulatory Authority (“FINRA”) does provide a forum for an employee to pursue arbitration against a former employer to contest a “Dirty U5.”  However, the best course of action is to avoid the problem from ever arising.  Registered employees in the securities industry are well advised to seek legal advice and counsel once it becomes apparent that their employment may be coming to an end.  In many cases, the disclosures made in the Form U5 by the employer may be mutually agreed upon before the employment termination ever occurs.

Should you have any questions relating to the Form U5, or employment issues generally, please feel free to contact Joseph Maya, or the other experienced education attorneys at Maya Law today at (203) 221-3100 or by email at JMaya@mayalaw.com.

Assignability of Non-Compete Agreements Under Connecticut Law in the Event of a Merger

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Neopost USA, Inc. v. McCabe, 2011 U.S. Dist. LEXIS 105850

Neopost USA, Inc. and Pitney Bowes, Inc. are two companies that essentially hold a duopoly on the national “mailing equipment” market, an industry that includes postage meters, mailing machines, addressing machines, folders, inserters, and relevant software.  Neopost, Inc. employed Mr. John McCabe from 2002 to August 1, 2011 but did not have him sign a non-compete agreement until February 2005, at which time he received a pay raise in connection with a corporate reorganization.

The parties executed a subsequent restrictive covenant in March 2006.  The agreements prohibited Mr. McCabe from engaging in competitive business activities for one year following termination within fifty miles of any Neopost office where he had worked during his employment with the company.  Additionally, he could not solicit Neopost’s customers or employees during the specified one-year period.  Neopost, Inc. merged with Hasler, Inc. and the transaction became official in November 2009 with the creation of a new company, Neopost USA, that assumed title to Neopost, Inc.’s assets and liabilities.

The Dispute

Mr. McCabe’s last day with Neopost was August 1, 2011 and he began to work for Pitney Bowes, its direct and main competitor, only a few days later.  There was a dispute between the parties regarding whether Mr. McCabe voluntarily terminated (resigned) his employment with Neopost or the company fired him.

Neopost sued Mr. McCabe in federal court for violation of the non-compete agreement and requested that the court enforce the provisions of the covenant in order to prevent further breaches of the agreements executed by the parties.  Mr. McCabe argued that his non-compete agreement with Neopost, Inc. were not assignable to Neopost USA, Inc. after the merger with Hasler, Inc. and thus, he was not bound by the provisions contained therein.

The Court’s Decision

The court rejected Mr. McCabe’s defense and granted Neopost’s request for injunctive relief and the enforcement of the non-compete agreements.  The court did not bother deciding the question of fact regarding the classification of Mr. McCabe’s termination.  Provisions of a non-compete are automatically triggered upon termination, regardless of whether it is voluntary or involuntary in nature.  The issue at hand and the focus of the court was the validity and enforceability of the non-compete agreements between Neopost and Mr. McCabe.

The court held that the non-compete agreements were assignable to Neopost USA following the merger, citing Connecticut law that “all property owned by, and every contract right possessed by, each corporation or other entity that merges into the survivor is vested in the survivor without reversion or impairment”.  Conn. Gen. Stat. § 33-820(a)(4).  In the event of a corporate merger, the surviving company holds title to all contracts and employment agreements of the predecessor companies and their provisions are valid and enforceable under Connecticut law.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.