Strategies for Breaking Away While Subject to a Non-Solicitation Agreement

Financial professionals that have entered into an employment agreement or some other form of contract with their employer that contains an agreement not to solicit clients upon their departure are in an extremely difficult place. How do you get out of an employment situation that you no longer want to be in without taking unnecessary risk.

I feel for you. As lawyers, we have rules of professional conduct that prohibit these types of restrictions by employers under the premise that clients should be free to determine who provides them with legal advice. I personally think that the financial advice profession would be better off without these restrictions, but that isn’t the point of this article.

In a previous article, I provided some high level guidance on how to prepare for and avoid litigation on non-protocol transitions. The purpose of this article is to identify strategies for financial professionals that are intended to help work around these restrictive covenants. Keep in mind that this is not intended to be legal advice and you should not rely on this article in making any employment decisions. State laws differ, as do the specific provisions found in employment contracts, and you will want to speak with a lawyer knowledgeable in restrictive covenants and the financial industry before you take any chances.

The approaches described below are intended to be ranked in order of my perceived level of risk. Approaches at the top are less risky than those appearing at the bottom.

  1. Broker Protocol. The first thing you want to do is determine whether your transition is subject to the protocol for broker recruiting. If it is, then you really won’t need to worry too much about these restrictions, because the protocol states, “RRs that comply with this protocol would be free to solicit customers that they serviced while at their former firms, but only after they have joined their new firms.”
  2. Resign and Don’t Solicit. Another low-risk approach is to resign and not contact any former clients. If your former clients reach out, you could then have an open conversation with them. Most employment contracts are drafted in such a way that former employees are prohibited from initiating contact. This is starting to change slightly based on wording I am seeing in employment contracts, especially at wire-houses that have savvy employment lawyers.
    • Inevitably, everyone has questions about family members and social friends. Stick to the plan. Don’t solicit them. Try not to create evidence that shows you reached out to them. No phone calls or text messages. All of these things can be subject to a subpoena in litigation.
    • Don’t contact clients before you resign and make appointments with them for after your departure date.
    • Don’t send your clients emails, text messages, or postcards saying you opened a new office.
  3. Resign, Don’t Solicit, but Make Certain Non-targeted “Tombstone” Announcements. A slightly riskier approach, involves resigning, not directly soliciting clients, but letting it generally be known to the world that you have left. Some examples of this involve updating your LinkedIn, Facebook or Twitter profiles to reflect your new employment. Other examples include taking an ad out in local publication to announce your change. To take it a step further, you might disseminate a message, post or tweet about your new employment. A little bit further, you might send a note-card to former clients stating that you joined a new firm and provide them with your contact information. Each of these actions could be innocent or could be in violation of your employment agreement.
  4. Resign and Selectively Solicit Without Creating Record of Evidence. Many financial professionals run in the same circles as their clients. They are friends, family, acquaintances from church, temple or their mosque, or golfing buddies. Solicitation litigation is heavily dependent on the evidence that a former employer presents. A jury or arbitration panel will of course see client accounts bleeding out. That is pretty telling that a former employee is soliciting accounts. However, the evidence they need to hit a home run is the outbound phone call, text message, or email. If you don’t give them that smoking gun, their case will become much more difficult to prove. If you slowly and methodically bump into your former clients in a natural setting, the risk of being found to have violated a solicitation agreement is reduced.
  5. Resign and Selectively Solicit Clients. With this approach, you would resign and then selectively solicit your most crucial clients (i.e., most revenue producing, most rewarding to work with, or most likely to tell all of your other clients about your departure). You know that you are legally prohibited from soliciting these clients, but they are worth the calculated risk. If you have to pay damages to your former employer for soliciting them, so be it. Further, you might be willing to simply negotiate a settlement to avoid litigation for the privilege of servicing these clients. By only soliciting a handful of clients, perhaps your former employer might have an incentive to pursue litigation and a temporary restraining order.
  6. Resign and Solicit the Heck Out of Your Former Clients. The riskiest approach is to resign and solicit every former client. If you have a non-solicit agreement in place, you can almost guarantee that you will be served with a lawsuit to stop your behavior. Maybe you want to challenge the state of restrictive covenant law in your jurisdiction and serve as a pilot case. Maybe you are prepared to be sued and pay damages. Maybe you know that your employer doesn’t have the resources to pursue litigation. Whatever you are thinking, I don’t condone this approach! But, to each their own.

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