Broker’s Corner
Beals Hubbard, PLC advises and
represents brokers who have been terminated or discharged by their
employers. The Broker’s Corner is a
weekly post on issues arising from stockbroker employment and separation.
This flagship post revolves around
the thorny issue of Promissory Notes. Generally,
brokers sign a Promissory Note at the outset of employment and or in connection
to a “retention bonus.” While employers
call these payments bonuses, they are actually forgivable loans that must be
repaid under certain circumstances.
While the loan is forgiven over time—each day you work, more of the debt
is wiped out—it is standard practice in the industry to tie termination or resignation
to the recipient’s obligation to repay.
Thus, in the event of termination or resignation, the unforgiven portion
of the Note becomes immediately due and owing.
In the event of involuntary
termination, the broker/dealer may add insult to injury by filing a claim
before the Financial Industry Regulatory Authority (“FINRA”) for the entire
balance due and owing as of the date of termination, plus interest, and
attorney fees incurred in order to collect the amount due. These actions are so common that FINRA now
has a special Promissory Note procedure, appointing one arbitrator only—the
norm is three—in cases where the balance on the Promissory Note does not exceed
$100,000.00. Unfortunately, these
actions are also selective, targeting employees who may have left on difficult
or unfavorable terms.
If you receive a letter from your
former employer demanding re-payment of a portion of a retention bonus, do not
panic. There are numerous defenses to
these actions. First, there are the
affirmative claims you may have such that you can sue your former employer in
FINRA. For example, if you were wrongly
terminated or discharged or your employer interfered with the relationship you
have with your clients, you likely have a cause of action. Second, there are specific defenses to
contractual agreements involving retention bonuses, especially if you received
money as a trainee. Finally, even if
there are no claims and no solid contractual defenses, there is always the
defense that the employer received the benefit of its bargain by retaining a
portion of your book of business. Thus,
if you had $50,000,000.00 worth of assets under management and you only
retained $15,000,000.00, you can assert that your employer got what it paid
for.
Make no mistake, Promissory Note
cases are difficult. However, with
experienced counsel standing shoulder to shoulder with you, you can drastically
reduce your liability, prosecute any claims you may have, and ensure that your
assets and livelihood are protected.
