A Superior Court judge recently ruled that a client list that had been put together by a financial advisor immediately after leaving his former firm could be considered the former firm’s confidential information even if compiled from memory. Thus, the advisor, who had a non-solicitation and confidentiality agreement with his former employer, could be enjoined from using the confidential information to solicit his clients developed while at his last employer for the one-year period of the agreement.
The employee had worked at Fidelity Brokerage for approximately nine years. His clients were all developed at Fidelity, mostly from internal referrals and leads. He abruptly resigned from Fidelity and then joined the firm UBS that same day. He created a written list of his clients upon joining UBS and then began contacting them, not only to tell them of his new employment but to also suggest that their investments would best be handled by his new firm.
The court ruled that pending binding arbitration pursuant to industry rules and regulations, the advisor would be enjoined from soliciting Fidelity’s clients, as he agreed to refrain from doing in a written agreement he had with Fidelity. Non-solicitation agreements are generally enforceable under Massachusetts law to the extent necessary to protect the legitimate business interests of the employer, including its confidential information. That the client list was not a written list or file that the advisor physically took with him did not preclude the information from being considered confidential, which could not be used to entice clients to switch investment firms, per the advisor’s written agreement with Fidelity. The court reasoned that the manner in which the confidential information is retained by the former employee does not affect whether it is in fact confidential.
The court also opined that while it was fine for the advisor to advise his old clients of his change of employment, any selling of his new firm and its products or services was in violation of the non-solicitation and confidentiality agreement in place at his old firm. The distinction to be drawn is between a simple announcement, which is permissible, and impermissible efforts to solicit former clients to transfer their investment accounts. The court cautioned that the announcement was best done through a written notice or letter, to avoid any doubt later about the substance of the communication to the client.
The legislature has recently imposed certain restrictions and limitations on employee non-compete agreements. See M.G.L. c. 149, § 24L. However, the statutory changes do not apply to non-solicitation or confidentiality agreements like the one at issue in this case.
The case is Fidelity Brokerage Services LLC v. Callinan, et al., Massachusetts Superior Court, February 7, 2019 (Justice Brian A. Davis).