Georgia Court of Appeals Takes on The Protocol

It’s not often we get a court case here in Georgia addressing the Protocol for Broker Recruiting . On June 27, 2018, the Court of Appeals of Georgia issued an opinion in a case between a group of financial advisors and their former RIA firm. The financial advisors had been registered with HA&W Wealth Management, LLC (a RIA) and were also registered with a broker-dealer. In April 2014, they left HA&W and moved to Morgan Stanley. At the time, both HA&W and Morgan Stanley were members of the Protocol.

The financial advisors’ employment agreements with HA&W Capital Partners, LLC (a holding company that owned HA&W Wealth Management according to the opinion) contained notice provisions that stated that they could voluntarily terminate their employment for any reason, upon providing advance notice to HA&W Capital. The notice period was either 60 or 90 days, depending on the financial advisor. The advisors all terminated their employment without providing the notice to HA&W the court said, and then immediately commenced employment at Morgan Stanley.

Lawyers got involved, it seems, and HA&W Capital filed a complaint and obtained a temporary restraining order preventing the departed advisors from contacting clients. The restraining order was dissolved by the court a few days later. Ultimately HA&W amended their complaint and added Morgan Stanley as a defendant as well. The claims against the individual advisors included a breach of contract claim for violating the provision requiring notice in their employment agreement. Among other things, the trial court found that the protocol precluded liability based on the notice of termination provisions in the employment contracts, and this appeal followed.

The Court of Appeals held that the protocol “does not categorically invalidate notice provisions in employment agreements.” As a result, the court reversed the trial court’s grant of summary judgment to the financial advisors on HA&W’s breach of contract claim. The appellate court held that “Such notice provisions are not specifically mentioned or otherwise referenced in the protocol. And we find nothing in the protocol’s unambiguous language that prohibits the notice provisions at issue in this case.”

So, cutting through the legalese, what’s the bottom line for financial advisors? We think that the big takeaway is this: The so called “garden leave” notice provisions can be enforced under Georgia law, and that failing to abide by these provisions can subject an advisor to liability for breach of contract. If you are a financial advisor contemplating making a career transition, consult with experienced legal counsel before making a move so you understand your obligations to your current (hopefully soon to be former) employer, as well as any obligations that you may bind yourself to in an agreement with a prospective new employing firm. With this case, we may see more firms seek to include garden leave provisions in their agreements with advisors, as doing so may increase the likelihood of retaining clients after an advisor leaves the firm. Make sure you know the full terms of the deal before you sign.

FYI:the case cited is HA&W Capital Partners, LLC et. al. v. Bhandari et. al., Case No. A18A0217, Court of Appeals of Georgia (June 27, 2018).

You may be interested in this other post on the protocol addressing Morgan Stanley’s announcement to leave the agreement.