Can They Do That To Me? 

During the last episode of “Looking Out for ‘U’,” Regina Repp had been fired from her job at BeeDee and expected to start employment with New BD.  She received an upsetting telephone call from her lawyer on Friday warning her that she had been named in a TRO.  First thing Monday morning, Regina is at her attorney's office.

Attorney:   Regina, you've got a fairly serious problem with this temporary restraining order.  I wish you had spoken to me before you told BeeDee that you were thinking of quitting, but there's no point in rehashing that.  Right now I need some basic information.  Let's start at the beginning.  Why did you get fired from BeeDee?

Regina:  Well, you were right about BeeDee and about everything else.  I sure made a mess of this. I should never have gone to that boiler room in the first place --- and I guess I shouldn't have signed that employment agreement either.  I brought in a lot of business to that firm, but they turned out to be a bunch of bastards.  Most of the RRs there hate working for the firm and . . .

Attorney:Regina, listen to me.  You're paying me $300 an hour.  Don't waste your money.  This isn't the time for the editorials.  I'm sure they're bastards, but we have a lot of work to do and very little time in which to do it.  Just give me the facts and answer my questions.  I don't mean to be rude but this isn't a social call; you've been sued and we need to respond quickly and in detail.  So, let's start again, why did you get fired?

Regina:They told me not to accept sell orders for Fly-By-Night common stock and warrants.  FBN turned out to be a scam and I wanted my clients out.  The manager refused to take any sell tickets. He told me to cross the sells with buys.  I didn't want to do that so I started looking around and was referred by my cousin Reggie to New BD.  In retrospect I guess I shouldn't have told BeeDee that I was planning on leaving to take a job with New BD --- and I guess, having told them my plans, I shouldn't have agreed to reconsider.  I think they fired me in order to try to steal my accounts.

Attorney: Did you get a copy of your Form U-5?  Do you know, for a fact, what reason the firm is giving for your termination?

Regina: No, I don't have a U-5 yet.  You don't think they would lie about why they fired me, do you?

Attorney:  Regina, you've apparently got a lot to learn.  With these type of people the truth is often a mere inconvenience.  Let's get back to business;  did you bring any accounts with you to BeeDee? 

Regina:  I brought over about 75 accounts, some were friends and family, but the bulk consisted of business I developed over the prior few years.  I worked hard for those first 75 accounts.  They represent many hours of cold calling.  BeeDee had nothing to do with my signing those accounts --- I brought them to BeeDee.

Attorney:  Well, BeeDee’s Petition for a Preliminary Injunction includes a copy of your employment agreement.  I don’t see any accounts listed on the Appendix page.  According to the agreement you were supposed to list those account that you claimed you were transferring to BeeDee.  Why didn't you list them?

Regina:  You want the truth?

Attorney: Of course . . . and if you're going to lie to me I can assure you that we're going to get killed in court.  What I don't know always comes back to haunt me.

Regina:  I didn't think it was BeeDee's business who my accounts were.  So, I figured, what the hell, why tell them.  Is that a big deal?

Attorney:  Under the terms of the agreement you agreed to list all accounts you were bringing to BeeDee.  The agreement specifically states that you acknowledge 

any account opened at BeeDee  during the term of Representative's employment, except those accounts which Representative brought with him to BeeDee  and which are listed on the schedule attached as Exhibit A, will be nurtured and developed by Representative as a result of BeeDee 's goodwill and assistance and shall, at all times, be deemed to be proprietary to, and the property of, BeeDee .

By not scheduling those clients you may have played right into BeeDee's hands --- those accounts may be considered BeeDee's property --- as if they were acquired during your employment with BeeDee.  Worse, BeeDee's attorney may cite this as an example of your dishonesty or your tendency to not follow procedures and policies. 

Regina:  Oh my God!  Does that mean I can’t even keep my own mother’s account or an account I've had for years?  

Attorney:  Well, there's some good news. According to BeeDee’s TRO petition you will be able to keep the accounts of your immediate family, but that's about all there conceding at this point.  I'm not saying that a judge or arbitrator will ultimately rule in BeeDee's favor on all your remaining accounts, but, yes, it's a real possibility that you might not be able to service those long-time accounts or you might have to pay some or all of the commissions to BeeDee.

     Lucky for you, right now the NASD is taking a close look at this very issue.  In fact, the NASD  just published in May 2001 a proposed rule interpretation that seeks to prohibit any member firm, such as BeeDee, from taking any action that interferes with a customer’s right to transfer his or her account.  Unfortunately this rule interpretation, which is not law, may not prevent a firm from putting non-compete provision such as the one you signed into employment agreements.  [For a more complete discussion of the NASD’s proposal see our recent article Looking Out For U: NASD’s Client Account Transfer Proposal.]

Regina:  So even though the NASD seems to agree in principle that my customers should be allowed to move their accounts as they wish, I’m still in trouble, primarily because I signed that ridiculous agreement and didn't list the accounts I brought with me to BeeDee?  So now what do I do? 

Attorney:  Well, first we have to go through the facts of this case step by step so that I can prepare an affidavit for you to sign.  The affidavit will explain, from your perspective, what occurred during your tenure at BeeDee and what happened after you were terminated.  Did you negotiate any of the terms of the contract, either before or after you signed it?  If so, did you get it in writing?  Possibly an addendum to the Association Agreement that BeeDee’s attorneys didn’t attach to their papers? 

Regina:  Frankly, I just signed the Agreement and forgot about it until they fired me.  They never even gave me a copy for myself.  I never saw the contract again until I was served with these legal papers. 

Attorney:  Once they told you they were letting you go, did you negotiate the terms of your departure?  For example, did you and the firm agree that you could take certain accounts or account information with you?  Did you discuss what would appear on your Form U-5? 

Regina:  No, I didn’t do any of that --- remember, they just locked me out of the office and had a guard escort me off premises.  

Attorney: Did you take any documents or information of any kind when you left BeeDee? 

Regina:  No.  They practically threw me out of the office.  I left with nothing but my purse.  BeeDee still hasn’t returned my personal photos, plants, etc. 

Attorney:  How did you get the account information that you used to call your clients? 

Regina:  I just had names and phone numbers.  I’ve always kept them in my Palm Pilot and from time to time I'd transfer the data onto my home PC so that I could reach my clients on weekends, holidays, or, if there were an emergency. 

Attorney:  Did you encourage any BeeDee employees to move with you to New BD? 

Regina:  Not at all.  I had lunch with two friends and I told them how excited I was to start my new job.  They left BeeDee because they were unhappy there.   

Well, the attorney-client conference continues.  Regina provides more details and her attorney continues to probe for possible problems or weaknesses.  Following the meeting, the attorney drafts a number of documents needed for tomorrow's  court appearance.  The lawyer may also contact several individuals, such as New BD's Regional Manager Howie Duing, some of Regina's customers, and possibly some former BeeDee colleagues.  If any of these individuals have relevant information, the attorney may prepare an affidavit for their signature to present to the court --- but it's also likely that many "helpful" person will decline to get involved.  Regina's attorney will also try to settle the dispute by speaking with BeeDee's lawyer, but, at this early stage, the former employer may be taking a very hard line and settlement may not be possible.     

BeeDee’s attorney will argue, among other things, that Regina breached the terms of herr Association Agreement, that she stole their proprietary information, that she improperly solicited BeeDee personnel, that BeeDee has suffered and will suffer a great financial loss as a result of herr conduct, that BeeDee’s business and reputation has and will suffer, and most importantly, that there is no adequate remedy at law and therefore, because BeeDee will otherwise suffer irreparable harm, the court must order a preliminary injunction –which is in essence a continuation of the TRO – in order to maintain the status quo until a final resolution is reached at arbitration.  

Regina's attorney (who may also be representing New BD) will argue that notwithstanding the onerous and improper nature of the contract’s non-compete provisions, Regina did not violate any part of the Association Agreement.  She took absolutely nothing with her that belonged to BeeDee when she was fired and did not solicit any accounts to leave BeeDee but merely discharged her professional responsibility by letting her clients know she had accepted a new job with New BD. As for any BeeDee employees who followed Regina, they left BeeDee of their own volition.  Finally, Regina's attorney will argue that an injunction  unfairly prevents her from earning a living in her chosen profession.  It is not BeeDee’s reputation and business that will suffer.  Accordingly, the lawyer will suggest that in lieu of the draconic remedy of an injunction, that the parties be left to resolve their dispute at arbitration.  It is suggested that the arbitrators are best able to determine whether Regina owes BeeDee commissions generated from the subject accounts, if any, and the arbitration panel will make an assessment of monetary damages. 

What do YOU think the judge will decide?  In the next installment we’ll discuss what the judge orders in Regina’s case and how such cases are typically resolved.  We will also go through a “do and don’t” checklist that you may wish to keep in mind when you accept a job, as well as when you leave one, whether voluntarily or “by the boot.”