Georgia Court of Appeals Finds in Favor of Aprio, LLP in Precedent Setting Ruling
Thursday, July 5th, 2018
The Georgia Court of Appeals has held that the Protocol for Broker Recruiting (the "Broker Protocol") does not prohibit financial service firms from enforcing notice of termination provisions in a precedent-setting case between Aprio, LLP, a full-service CPA-led business advisory firm, and Morgan Stanley Smith Barney. Notice of termination provisions require employees to give notice of their resignations prior to terminating their employment, in employment agreements (also known as "garden leave" provisions). The Court's decision has widespread and important implications for the financial services industry.
"Our first priority is to protect our employees and our clients," said Richard Kopelman, managing partner and CEO of Aprio, LLP. "Morgan Stanley's actions directly and negatively impacted the financial health and well-being of not only of our firm but also, more importantly, our employees. We are pleased that the ruling from the Georgia Court of Appeals will allow us, as well as other firms across the country, to operate with greater peace of mind that our business will not be disrupted."
On April 4, 2014, four of Aprio's financial advisors abruptly resigned and immediately transitioned to Morgan Stanley Smith Barney, the largest wirehouse in the country by assets under management, along with Aprio's chief compliance officer and all of the firm's wealth management division junior advisors, support, and administrative staff. However, those four financial advisors had employment agreements requiring them to provide advance notice prior to resigning.
Aprio sued the advisors for breaching their employment agreements and later added Morgan Stanley Smith Barney as a party, alleging tortious interference with Aprio's contractual relationships and unfair competition due to the raiding of the wealth management division. Morgan Stanley Smith Barney took the position the Protocol precluded enforcement of notice of termination provisions.
In HA&W Capital Partners, LLC et al. v. Bhandari, et al., the Georgia Court of Appeals roundly rejected that argument. As the Court concluded, advance notice of resignation provisions are "reasonable to allow the employer to prepare for an orderly transition …," and are not "restrictive covenants" comparable to non-solicitation provisions, and can be enforced by employers through suits for monetary damages. The Court also held being a signatory to the Broker Protocol does not change that result.
The Broker Protocol was established in 2004 by Smith Barney (n/k/a Morgan Stanley), Merrill Lynch and UBS to create rules governing how brokers move from one signatory firm to another. The Protocol's key language is this:
If departing registered representatives and their new firm follow this protocol, neither the departing [registered representative ("RR")] nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left by reason of taking [certain client information] or the solicitation of the clients serviced by the RR at his or her prior firm; provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for "raiding."