Today I will start by making a clear statement: I am not offering legal assistance since I am not a practicing attorney. I am only sharing ideas and situations that I have come across as a recruiter over the last 10 years. In previous articles we’ve addressed the issue of garden leave; however, we’ve never addressed the issue of contractual obligations you may have entered into at your previous firm or new obligations with your next firm. For a successful public finance banker and/or bond counsel, you can rest assured that you have signed an agreement with certain aspects that may limit things you would like to do while transitioning to a new firm. By being aware of these ahead of time you can potentially mitigate them, negotiate them away, or learn to live with them for a short period.
What Do Your Current Legal Contractual Obligations Include?
When I’m working with a candidate and see that we’re getting close to a transitional state, my first recommendation is that they review all current legal, contractual obligations they entered into when they were hired by their existing firm. Many years have passed, and the candidates usually have no recollection of what legal obligations they signed when they were first hired. It is absolutely crucial that you are familiar with the covenants you could have agreed to when negotiating with your new potential firm. The main covenants would include some of the following: the covenant not to compete, the covenant not to reach out to current employees, the garden leave provision (if any), or any other restrictive language a firm may have had you sign.
Know Thy Covenants:
Do Not Compete
First, let us address the covenant not to compete. Each firm will have their own definition of what the terms of this covenant actually means. It could be as simple as you cannot compete in the same marketplace that you are currently at; but should you change your marketplace, then you would be free of any restrictions. It may also mean that if you are an investment banker that chooses to become a financial advisor and not do any investment banking business, you may be free from any restrictions. Or it could be the converse, where a firm will try to tie you up for a long period of time restricting you from any sort of business. The latter most likely not being upheld in a legal suit. Who wants to go down that route though? As for restricting yourself from reaching out to current employees, this seems to be a standard clause in most contractual obligations. Some firms will enforce this while others do not.
The Rules Of A Garden Leave
The greatest controversy usually occurs regarding garden leave. This seems to be the covenant that is extremely specific to the individual that it is trying to be enforced against. Garden leave, for those who do not know, is when a firm will continue to pay you for a period of time (i.e. usually up to 90 days), and you agree not to reach out to any of your current clients or do any marketing for your new firm. Since your license has not been transferred to your new firm during this period of time, you are still considered an employee of your current firm. These contractual obligations apply across the board to both public finance bankers and bond counsels alike.
As I mentioned previously, garden leave agreements are significantly individualistic and can sometimes be negotiated out of contractual obligations. I have seen firms insist on a 90-day garden leave, but after 30 days they realize one of two things. One being that they are not going to be able to convince issuers to stay with their firm for the remainder of time; or they decide that paying for another 60 days does not make any sense and releases their past employee much sooner. I have also witnessed a candidate who is going to move willingly give up his/her expected bonus in return for their garden leave being reduced or eliminated completely. This will usually occur only if the new firm is willing to pick up that shortfall in either a signing bonus or a forgivable note.
Before You Sign Any Contractual Obligations
This is just a very short synopsis of contractual obligations you may not be aware that may affect you. It is highly recommended that when you prepare to make a move, you either have an attorney or other advisor look at your contract and determine what legal obligations you have signed up for. There are numerous ways to mitigate some of these issues. A knowledgeable recruiter working with the new firm should be able to share some insight and suggestions.
If you would like to discuss your options, please reach out to me for a confidential conversation at 760-477-1284 or email me at firstname.lastname@example.org. He can also be reached on LinkedIn.
About Harlan Friedman, JD & Founding Member, H. Friedman Search LLC. Harlan is a thirty-year veteran Public Finance Banker turned recruiter who specializes in the placement of all level Public Finance Bankers, Health Care Bankers, Municipal Financial Advisors, Compliance Officers, Issuers, and Bond Counsels.