Posts tagged with "U-5"

What’s In a Separation Agreement?

With the economy where it is, the employment lawyers in the Westport, Connecticut office of Maya Murphy, P.C. are frequently asked to review and negotiate separation agreements for terminated employees.  These agreements often appear similar in form and content but must be carefully scrutinized, as they can contain hidden “trip wires” that can have a profound and long-lasting effect on the former employee’s job prospects.  Here are some of the things to look out for.

Most separation agreements contain restrictive covenants—confidentiality, non-solicitation, or non-competition clauses.  The first two—confidentiality and non-solicitation—are typically non-controversial, as they often confirm pre-existing obligations owed an employer by a former employee.  The last—non-competition—is usually a point of contention, as it impacts directly the employee’s ability to find a new position.  We have blogged extensively on non-competes, their interpretation and enforceability, etc. and readers are invited to review those prior posts.  But other terms and conditions of a separation agreement deserve your attention, as well.

First of all, do not be surprised by the length of a separation agreement.  A federal statute called the Older Worker’s Benefit and Protection Act requires the inclusion of extensive release language, and such things as a 21 day review and seven day revocation period.  Here are some of the other things you should be on the lookout for:

  • Consideration:  Make sure all of the severance benefits are correct and clearly stated.  This includes severance pay, COBRA coverage, etc.  Do not leave anything to inference or implication.
  • Confirmation that No Claims Exist/Covenant Not to Sue: Notwithstanding the comprehensive release language, some separation agreements will also require the employee to state that he/she is not aware of any factual basis to support any charge or complaint and that the employee will forego suit, even if such a claim exists.
  • Non-disparagement: Both sides often agree that neither will say anything to disparage the other.  Sometimes (particularly in the financial industry), a separation agreement will contain a “carve out” for employer reporting to FINRA or the SEC.  In such a case, it is important to have the agreement state that as of the employee’s separation date, the employer was not aware of any reportable event or information that would warrant comment or notation on a Form U-5.
  • Governing Law:  Employment law does not travel well across state lines.  For example, California law is much different than Connecticut’s.  Large companies will sometimes have their separation agreements governed by the law of the state where it has its headquarters, irrespective of the actual place of work of the departing employee.
  • Acknowledgement of Non-Revocation: An employee has seven days within which to revoke acceptance of a separation agreement.  Some companies adopt a “belt and suspenders” approach and require the employee to acknowledge in writing a negative—that they have not revoked such acceptance.

The employment law attorneys in the Westport, Connecticut office of Maya Murphy, P.C. have extensive experience in the negotiation and litigation of all sorts of employment-related disputes and assist clients from Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport and Fairfield in resolving such issues.  203-221-3100.

 

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Expunging a Dirty U-5—Be Careful What You Ask For!

Expunging a Dirty U-5—Be Careful What You Ask For!

The view from the impending “fiscal cliff” takes in much of Fairfield County’s “Gold Coast”—Greenwich, Stamford, Darien, and Westport. We at Maya Murphy, P.C. represent many residents employed in the financial industry, both within and without the State of Connecticut. Some of their financial employers may be considering reductions in personnel depending upon the results of the upcoming Presidential election, Congressional action (or inaction) concerning “taxmaggedon” and “sequestration,” and their own Q4 and year-end results. If financial firms retrench, there will be dirty U-5’s on “the street.” We are often asked about the possibility of “scrubbing” a U-5 or expunging it altogether. The current economic climate and new proposed rules from FINRA warrant a warning that usually accompanies our advice.

The current FINRA Customer and Industry Codes do not afford “unnamed persons,” i.e., the subject of allegations but not named parties to the underlying arbitration, to seek expunging of allegations reported to the Central Registration Depository (“CRD”) on Form U-5 (and available to the public through such resources as “Broker Check”). To rectify that situation (recognizing that a dirty U-5 impacts one’s livelihood), FINRA has proposed In re expungement rules seeking to balance the respective interests of the registered professional and the investing public. Public comment on the proposed rules was closed on May 21, 2012. The purpose of this post is not to critique the new rules that, while not problem-free, at least address the issue of incorrect allegations remaining on CRD records in the absence of an evidentiary hearing to determine the accuracy of those allegations. The purpose of this post is to point out that the new rules, in whatever final form they may take, can be a cure worse than the disease.

There is no denying the injustice of having a registered representative’s U-5 amended to reflect a customer complaint without the representative being named as a respondent in subsequent arbitration. The net effect is to have the representative tried in absentia without the ability to present evidence or cross-examine witnesses by way of defense. The proposed In re expungement rules, however, may not be all they are cracked up to be. A recent FINRA arbitration decision points up the problem.

In the Matter of the FINRA Arbitration between Eduard Van Raay, Claimant v. Raymond James Financial Services, Inc., et al., Respondents (FINRA 11-04544, July 16, 2012), the underlying claim was settled and an arbitrator was appointed solely for the purpose of considering a request for U-5 expunging. The original offending, terminating language was: “Violation of firm policy. Failure to disclose an outside business activity (personal representative relationship with a client).” After the arbitration, the recommendation was for the language to be amended to read: “Permitted to resign. Advisor chose to continue unapproved outside business activity.” This was hardly an improvement to that which he sought to have expunged.

The original language was cryptic, susceptible to differing interpretations, and perhaps easily explained. The post-arbitration language, however, was clear, concise, damaging, and most importantly, the product of FINRA arbitration. Instead of vague allegations of a personal relationship with a client, the representative’s CRD will now be saddled with a finding that he chose to continue an unapproved outside business activity. The takeaway is that the outcome would not survive a rigorous pre-arbitration risk/reward analysis. Arbitrations, as with lawsuits, are a lot like wars—they are easier to start than to stop. They often bring with them unintended consequences.

The new In re expungement rules present registered representatives with an additional option that was previously unavailable. Assuming their future adoption, that does not mean that every offending CRD entry should be the subject of a FINRA arbitration. Whether, and when, to pursue expunging is a decision that should be discussed thoroughly with a seasoned litigator familiar with the FINRA Rules and decisions. We, here, in Maya Murphy’s Westport, Connecticut office stand ready to assist in that regard. Please call Robert Keepnews, Esq. at (203) 221-3100, or e-mail him at rkeepnews@mayalaw.com.

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