Yesterday we talked about broker migration and the application of the Protocol for Broker Recruiting. Today, I will address how the courts have looked at this issue when faced with litigation between an ex-employer/brokerage company and the ex-employee/broker.

Litigation associated with broker migration usually arises in one of two situations:
(1) A signatory firm sues a former employee who joined another signatory firm.
(2) A signatory firm sues a former employee who joined a non-signatory firm.

A court’s application of the Protocol in the first category should be anticipated because that situation falls within the Protocol’s scope. In these cases, if the broker followed the Protocol, there should be no liability.

In the second situation, one would anticipate the Protocol would be irrelevant since both firm are not parties to the agreement. However, some courts have relied on the Protocol in cases where only the complaining firm is a signatory. For example, in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Brennan(Ohio Feb. 23, 2007) , three former employees of Merrill Lynch resigned from that firm to join Bear Stearns & Co. Merrill Lynch is a signatory to the Protocol. Bear Stearns is not. Merrill Lynch sued the former employees, claiming that they breached various employment agreements by taking client contact information with them to Bear Stearns and then soliciting the clients they serviced while at Merrill Lynch.

The U.S. District Court for the District of Ohio ruled against Merrill Lynch. While the Court acknowledged that it previously found arguments of irreparable harm persuasive, the emergence of the Protocol in the securities industry convinced the court that “such arguments no longer merit such weight.” The court did not consider it important that Bear Stearns had not signed the Protocol, but it did find it significant that Merrill Lynch had signed the Protocol. The Court held that by doing so, Merrill Lynch had effectively conceded that the transfer of client lists to a new firm, whether or not that new firm had signed the Protocol, did not give rise to irreparable harm.

My take: Courts will be faced with increasing litigation between departing brokers and their previous employers…and I’m pulling for the brokers every step of the way!

Dan Frith
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