Securities Industry

Employment in the securities industry as a broker-dealer is regulated by the Financial Industry Regulatory Authority (FINRA) and presents unique issues in employment law for securities lawyers. If you become a broker-dealer employee of a brokerage, your employer will be required to register you with FINRA by filing a Uniform Application for Securities Industry Registration or Transfer (Form U-4) when you are hired that includes your agreement to arbitrate any claim between you and your employer that FINRA rules require be arbitrated. You will also enter into an employment contract with your employer that will most likely include restrictive covenants (non-compete, non-solicitation and non-disclosure) and a further clause requiring you to arbitrate all disputes between you and your employer before FINRA, rather than in court.

Broker-dealer employees work on a commission basis, and employers often offer a variety of incentives for you to become an employee, sometimes including an advance on commission in the form of a promissory note (also called an “up-front forgivable loan,” or UFL) that is forgiven over the time of your employment. When you leave a brokerage job, your employer will file a Uniform Termination Notice for Securities Industry Registration (Form U-5) with FINRA, which will include a reason for your termination that will stay on file your entire career.

What employment law issues am I most likely to face as a broker?

All federal, New York State and municipal employment laws, including laws prohibiting discrimination (on the basis of race, sex, ethnic/national origin, age, disability, sexual orientation) and harassment apply to employees in the securities industry. However, there are some issues that are unique to the securities industry:

  • Your employment agreement probably includes a clause requiring that “any and all” claims against your employer be resolved by arbitration before FINRA instead of in court. However, depending on the wording of the arbitration clause, it may or may not be enforceable if you are claiming that your employer violated a federal, state or municipal anti-discrimination statute (for example, by keeping you from working with top clients on the basis of your age, in violation of the Age Discrimination in Employment Act).
  • If you received a UFL but were terminated or left your job before it was completely forgiven, you may be liable to pay all or part of the remaining principal, and your employer can sue you to collect it.
  • If you are terminated or leave your job, the reason for termination your employer gives in a U-5 may be false or defamatory, which could inhibit your ability to find further work in the securities industry. You may be able to get false information expunged and you may have a defamation case against your employer as a result.
  • As a commissioned employee, New York law regarding unpaid sales commissions applies; however, any claim you have to collect non-payment, under-payment of commission, or for unlawful deductions from your commission is subject to the arbitration clause in your employment agreement.
  • If you are a broker who makes buy and sell decisions for clients, you are probably exempt from Fair Labor Standards Act (FLSA) overtime provisions. But if you merely execute the wishes of clients, you may be non-exempt for purposes of overtime under FLSA.

I think I have an employment law problem unique to my work in the securities industry. What can securities lawyers do to help me?

  • Act quickly–you have a limited time to file a claim, and delay in defending against a claim can result in substantial liability
  • Gather any documents relevant to your claim, including your employment agreement.
  • Consult an experienced securities industry employment lawyer.

Changes may occur in this area of law. The information provided is brought to you as a public service with the help and assistance of volunteer legal editors, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or to substitute for the advice of a lawyer.

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