IMPORTANT COURT DECISION ON FINANCIAL ADVISORS AND NON-COMPETES

The U.S. District Court in Norfolk, Virginia just issued an important ruling on the effects of non-compete/non-solicitation agreements on financial advisors who are regulated by the Financial Industry Regulatory Authority or “FINRA.” The case is Bank of America Investments Services, Inc. v. Michael Byrd and Gregory Harris.

Byrd and Harris were employed as financial advisors for Bank of America.
Both Byrd and Harris resigned from Bank of America (BOA) to join Wells Fargo Advisors, formerly known as Wachovia Securities, LLC (“Wachovia”). Following his resignation, both employees telephoned former BOA clients and, at a minimum, informed such clients that he had left BOA and joined Wachovia.

BOA filed a request for a preliminary injunction and restraining order citing a non-competition/non-solicitation agreement entered into with the departing employees. Interestingly, the parties agreed they are subject to and bound by the rules of conduct promulgated by FINRA and that the merits of their dispute involving purported post-employment solicitation were subject to mandatory and binding arbitration. However, applicable employment agreements and the FINRA Code of Arbitration Procedure expressly provide that preliminary injunctive relief may be sought in court, pending a final arbitration ruling.

The court’s analysis of the issues is a “road map” for employees who find themselves defending these types of claims by their previous employer. In determining whether to issue a preliminary injunction, the Court used the “Blackwelder test” which considers: (1) the likelihood of irreparable harm to
the plaintiff should the court refuse to grant the injunction; (2) the likelihood of harm to the defendant should the court grant the injunction; (3) the likelihood that the plaintiff will succeed on the merits; and (4) the public interest.

The court reviewed and discussed the evidence on these issues and held that BOA was not entitled to the requested preliminary injunction.

My Take: This is a good decision for employees and financial advisors and should be read and studied by anyone finding themselves in this situation.

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Dan Frith

Dan Frith has over 25 years of experience representing individuals and families in cases of medical malpractice throughout Virginia. He has been named "Best Medical Malpractice Attorney" by Roanoker Magazine and is a member of the Million Dollar Advocates Forum. To speak with Dan, contact him by email at dfrith@frithlawfirm.com.