Employment rights for financial advisors and registered representatives

Who this covers

FINRA’s arbitration rules cover anyone registered or applying for registration with a member firm, plus officers, directors, branch managers and others in similar roles, whether or not they are registered. They also cover you after you leave: “a person formerly associated with a member is a person associated with a member” (FINRA Rule 13100(u)).

Where your dispute will be heard

A dispute between you and your firm that “arises out of the business activities of a member or an associated person” must be arbitrated before FINRA (FINRA Rule 13200(a)). That covers most pay disputes: commissions, bonuses, deferred compensation, promissory notes and the Form U5. The main exceptions:

• Discrimination claims under a statute are not required to be arbitrated under FINRA’s rules. They go to arbitration only if you agreed to arbitrate them, before or after the dispute (Rule 13201(a)). Many firms have their own arbitration agreement that does exactly that, so read yours.
• Sexual harassment and sexual assault claims can be taken to court even if you signed an arbitration agreement, at your election (Rule 13201(c); 9 U.S.C. § 402(a)).
• Whistleblower claims under a statute that bars arbitration agreements, such as Sarbanes-Oxley, need an agreement made after the dispute arose (Rule 13201(b)).
• Class and collective actions cannot be arbitrated under FINRA’s rules, including collective actions under the Fair Labor Standards Act, the Age Discrimination in Employment Act and the Equal Pay Act (FINRA Rule 13204).

More detail, including what arbitration costs: do I have to arbitrate my dispute with my brokerage firm?

Your Form U5

Within 30 days after you leave, your firm must file a Form U5 and give you a copy of what it filed. If it later amends the form, it must file the amendment and give you a copy within 30 days of learning the facts behind it (FINRA By-Laws, Art. V, Sec. 3). The form states the reason you left: “Voluntary,” “Permitted to Resign,” “Discharged” or “Other,” with a written explanation for the last three (Form U5 instructions). Other firms, and regulators, will read it.

In New York you cannot sue for defamation over what the firm wrote on the form. The Court of Appeals held that statements on a Form U5 “are protected by an absolute privilege,” so a defamation claim fails even if the statement was false and malicious (Rosenberg v. MetLife, Inc., 8 N.Y.3d 359 (2007)). The court pointed to a different remedy: a registered person who is “maliciously defamed on a Form U-5” may “commence an arbitration proceeding or court action to expunge any alleged defamatory language.” FINRA has said it may process, without a court order, an arbitration award that orders expungement “because of the defamatory nature of the information” (NASD Notice to Members 04-16, n.4).

That rule is New York’s. Some other states give U5 statements only a qualified privilege, which can be overcome by showing the firm knew or should have known the statement was false, or acted recklessly, so which state’s law applies can matter.

Removing customer complaints from your record is a separate and stricter process, with time limits and a unanimous panel finding that the claim is factually impossible, clearly erroneous or false, or that you were not involved (Rule 13805), followed by a court order confirming the award (Rule 2080).

The practical point: the wording of a U5 is easiest to fix before it is filed, as part of the terms on which you leave.

Bonuses, commissions and deferred pay

Commissions

When a commission is earned is “governed by the parties’ express or implied agreement,” and executives are protected employees under the wage law unless expressly excluded (Pachter, 10 N.Y.3d at 612, 616). See the sales commissions guide.

Bonuses

A bonus that depends on the firm’s results and is left to management’s discretion is not “wages” under the Labor Law: “Discretionary additional remuneration, as a share in a reward to all employees for the success of the employer’s entrepreneurship, falls outside the protection of the statute” (Truelove, 95 N.Y.2d at 224). A guaranteed, non-discretionary bonus tied to your own work, earned before you left, is wages, and in that case the Court of Appeals allowed attorneys’ fees under the Labor Law (Ryan). Written plan language that clearly reserves discretion usually controls (Namad; Hunter), so the plan documents decide most bonus disputes.

Deferred compensation you lose for competing

New York’s “employee choice” rule enforces a forfeiture-for-competition clause without asking whether it is reasonable if you left voluntarily, but “a court must determine whether forfeiture is ‘reasonable’ if the employee was terminated involuntarily and without cause” (Morris, 7 N.Y.3d at 621). For pension benefits forfeited after a firing without cause, the Court of Appeals held the forfeiture “unreasonable as a matter of law” (Post, 48 N.Y.2d at 89), while reserving a plan written to show an “unmistakable intention” to forfeit even then. Courts disagree on whether the same rule stops a firm from enforcing an ordinary non-compete or non-solicitation clause, with no forfeiture, against someone fired without cause, so do not assume it does. A resignation counts as involuntary only if the firm deliberately made conditions so intolerable that a reasonable person would have felt compelled to resign; a cut in your assignments is not enough (Morris, 7 N.Y.3d at 622).

Leaving for another firm

• Your old firm may not interfere with a customer’s request to move an account because you changed firms, including by seeking a court order that blocks the transfer paperwork (FINRA Rule 2140). That does not stop the firm from pressing a non-solicitation claim against you.
• A firm can ask a court for a temporary restraining order against a departing representative, but it must file for permanent relief in FINRA arbitration at the same time, and the FINRA hearing begins within 15 days of any court order (Rule 13804).
• Whether you may take client contact information depends on your agreements and on whether both firms currently belong to the industry’s Protocol for Broker Recruiting. Membership changes; check the current list before you rely on it.

Discrimination, harassment and whistleblowing

• If you work in New York City, the NYC Human Rights Law applies, with its broader standards. See your rights under the NYC Human Rights Law and claim deadlines.
• Sarbanes-Oxley protects employees who report securities fraud. The complaint goes to the Secretary of Labor within 180 days, and an agreement to arbitrate made before the dispute is not enforceable (18 U.S.C. § 1514A(b), (e)).
• Dodd-Frank protects you only if you reported to the SEC itself before the retaliation, not just internally (Digital Realty Trust, Inc. v. Somers, 583 U.S. 149 (2018)). If it applies, it allows twice the back pay owed, with interest (15 U.S.C. § 78u-6(h)).

How I work on these matters

I do not bill by the hour. Depending on the matter, I work on a contingency fee, a flat fee, or a flat fee for a defined phase that converts to a contingency on any recovery, with the flat fee credited. Before joining Valli Kane & Vagnini, I spent ten years at a national plaintiffs’ class-action firm working on securities, consumer and employment class actions (about me).

What to gather

• Your offer letter, employment agreement and any separate arbitration agreement.
• Every compensation, bonus and deferred-compensation plan in effect while you worked there, and your pay statements.
• Any promissory note or forgivable-loan agreement, with its payment schedule.
• Your Form U5 and any amendment, and anything in writing about why you left.

Do I have to arbitrate my dispute with my brokerage firm?

If you have been offered a severance agreement