Dear Breakaway Broker: Know Your Employment Agreement(s)

Confidentiality or non-disclosure agreements are – yet again – matters of state law and require a case-by-case factual analysis. But generally speaking, they are not as controversial as non-competes and non-solicits. Employers have employees sign confidentiality agreements for obvious reasons: to protect sensitive, proprietary, and economically valuable information that is the lifeblood of a successful business' existence.

A basic confidentiality agreement should define what is considered confidential, explain how and why it is to remain confidential, carve out a few exceptions that necessitate disclosure, and – importantly for this article – how long confidentiality obligations apply. 

The duration of confidentiality obligations post employment can be as short as a few years or as long as… forever (i.e., the agreement is silent with respect to when confidentiality obligations end). An indefinite confidentiality agreement is not per se unenforceable, but a court would be within its right to assess duration if the overall agreement is in question or the confidential information in question is not a trade secret. 

A trade secret can be thought of as extra-special confidential information. That is, a trade secret is afforded more protection because it derives its value from its secrecy and is highly coveted and protected by its owner. Think of the recipe for Coca-Cola as the ultimate example of a trade secret: both highly valuable to the Coke brand and highly protected by Coke as its owner. But many advisory firms also have trade secrets as well, albeit on a less dramatic scale than Coke, and would be inclined to litigate if they see their proprietary methods, techniques or processes used by a former employee at a competitor. 

Can a client list be considered a trade secret? It depends, but in the context of an advisory business that spends significant time and resources gaining clients, takes reasonable steps to protect the personally identifiable information of those clients (pursuant to Reg S-P or otherwise) and would suffer potentially severe economic consequences if a client list became available to a competitor or the public, I would proffer that it is. 

Don't assume that your former employer's methods, techniques, processes or client lists aren't confidential or trade secrets; odds are the employer will have a very different assumption. 

Non-Disparagement Clause

A non-disparagement clause, if included as part of an employment contract, is pretty straightforward: don't say or publish anything nasty about your former employer after you've parted ways (social media included). Doing so may trigger a breach of contract claim and burn bridges that can't be rebuilt. 

In Conclusion . . .

Conspicuously absent from the above discussion is the Broker Protocol, which governs reps moving between member firms and the client information they may and may not use before, during, and after the transition process. It only applies to signatories of the Protocol and frankly could be a standalone article in its own right. Suffice to say the application of the Protocol creates another minefield altogether, albeit one that may be easier to navigate. 

I generally have refrained from advocating the retention of competent legal counsel in my articles, but this time will be an exception. There has been no shortage of litigation in this space, and one misstep can bring disastrous consequences for both the departing advisor and the new firm.

This article is general in nature and not state specific, but will hopefully highlight some of the key documents to review when contemplating a move. In summary, look before you leap.