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Just Cause Requirement for Termination:
It May Be Required before Your Firm Can Discharge You
rokers want to carry certain things in their briefcases. Three of them may be this article, the opinion of the court in PaineWebber v. Agron and the opinion of the court in Shearson Hayden Stone v. Liang. Why? Because they may give you important rights in connection with termination of your employment, as well as with the validity of covenants not to compete and the validity of collection actions on promissory note balances.
Your brokerage firms certainly will not tell you that you are anything but an employee at will (unless you have heeded my advice previously dispensed that you should insist that your firm add to its boilerplate employment agreement a provision requiring that you can be terminated only for "just cause"). Flowing from your employment-at-will status, the firm will claim that you can be fired for no reason, even for an unjust reason. Despite having no reason or an unjust reason to fire you, the firm will insist that you honor your non-competition agreement and pay back any balance due on your promissory note.
That's when the contents of your briefcase may come in handy. First, let's examine the case between broker Liang and brokerage firm Shearson Hayden Stone, Inc. In 1981, the Seventh Circuit Court of Appeals (covering Illinois, Indiana and Wisconsin) affirmed the decision of the district court, which itself had confirmed the award of a NYSE arbitration panel. Liang had complained that he was wrongfully terminated, and the arbitrators agreed. On appeal to the Seventh Circuit, Shearson argued that Liang's employment was terminable at will. The court disagreed, stating:
Shearson's further reply that Liang's employment was terminable at will is without merit. It has been held repeatedly that an agreement to arbitrate disputes about employee discharges implies a requirement that discharges be only for "just cause".
Brokers, of course, agree to arbitrate their disputes. Importantly, despite its 1981 vintage, Shearson Hayden Stone remains good law. Indeed, the Seventh Circuit Court of Appeals cited it favorably in 1991.
Additionally, in 1995, the Eighth Circuit Court of Appeals (covering Missouri, Minnesota, Nebraska, Iowa, Arkansas, and North and South Dakota) said basically the same thing. In that case, broker Agron had filed an NASD arbitration claim against PaineWebber. After four days of hearings, the arbitrators unanimously found that PaineWebber's termination of Agron was improper. The panel also found that PaineWebber wrongfully had seized Agron's personal brokerage account at the firm to pay off his note, and that PaineWebber had interfered with Agron's business after his discharge. The panel ordered PaineWebber to pay damages to Agron and to release him from liability on the note.
PaineWebber fared no better before the appellate court. Affirming the district court, and citing Shearson Hayden Stone and other court decisions, the appellate court rejected PaineWebber's claim that Agron was an employee at will. Noting that PaineWebber had shown no limitations on the arbitrators' powers, the court stated:
Even accepting that Kansas is an employment-at-will state.... PaineWebber's relationship with Agron under the oversight of the NASD contemplated the use of the arbitration procedure as a means of settling employment-related disputes. This process necessarily alters the employment relationship from at-will to something else — some standard of discernable cause is inherently required in this context where an arbitration panel is called on to interpret the employment relationship.
While the law as set forth in PaineWebber v. Agron and Shearson Hayden Stone v. Liang is dispositive precedent in the several states noted, brokers in other states should note that we searched for but were unable to find court decisions from other states disagreeing with these court decisions. Nonetheless, brokers in those states — and all brokers nationwide — should seek competent legal counsel before acting on the court decisions discussed herein.
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
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