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I’m an RIA, and I Need to Fire an Employee. How Can I Avoid a Lawsuit for Wrongful Termination?

How Can I Avoid a Lawsuit for Wrongful Termination?

Are you an RIA who has questions about terminating an employee? Do you want to ensure that you don’t get served with a lawsuit for wrongful termination? Far from a simple process, terminating an employee can create a complicated and stressful situation. However, ineffective termination processes can transform the firing of an employee from a stressful situation to a nightmare scenario. Before terminating an employee, know and understand the steps you should take to avoid dealing with a wrongful termination lawsuit.

Implement a Robust Termination Policy

Before terminating an employee, an RIA should have an established termination policy. When necessary, document the return of any Firm property (including devices, keys, key fobs), have a designated supervisor watch the employee pack and escort the employee out of the office and leave any discussion of why until the following week when cooler tempers prevail. Any investigation leading to the termination of an employee should be well documented. Without a robust termination policy, you may end up spending significant time defending a wrongful termination lawsuit—time you could have spent working for your firm and clients.

You could also lose time and money tied up in arbitration with clients. And to make matters worse, you could be fined by the state for failing to respond adequately to any red flags created by the terminated employee’s activity before their termination.

What Happens When You Don’t Have a Termination Policy?

Recently, we heard from the owner of an advisory firm who decided to terminate one of his advisors who unfortunately suffered from bipolar disorder. During a manic episode, the advisor began executing trades for high-risk, aggressive stocks on behalf of several clients, many of whom held conservative or moderate investment strategies. This employee’s actions resulted in losses of hundreds of thousands of dollars in the accounts of the firm’s clients. This advisor was immediately fired, the state regulators were alerted, and the firm had to undergo a “for cause” examination. The firm lost hundreds of thousands of dollars, and the fired advisor sued the firm claiming that the firm unlawfully terminated him for a mental health issue.

Fundamental Topics to Discuss In a Termination Meeting

In a termination meeting, there are several fundamental topics you should cover and document, including:

  • That a decision has been made to terminate employment
  • The reason(s) and key facts supporting the decision
  • The effective date of separation
  • A review of the separation package and benefits
  • What will happen immediately following the meeting (returning company property, being escorted from the building, etc.)
  • A review of the policy and procedures for giving references
  • Other exit activities, including questionnaire or outplacement meetings
  • A review of applicable post-termination restrictions, such as non-compete or nondisclosure agreements
  • Whom to contact about post-termination issues

Prepare for the meeting in advance and invite your firm’s attorney or a member of our attorney team to participate in the termination process. These actions ensure that you are following all employment laws and handling the termination properly.

Should You File a Form U5?

A Form U5 must be filed when an individual leaves a firm for any reason. Therefore, if you are an RIA terminating an employee, you must file a Form U5 and submit it within 30 days of the individual’s employment end date. If you do not submit within this timeframe, a late fee may be applied. The Form U5 must be filed electronically. You must also provide the terminated individual with a copy of the Form U5 within 30 days.

What If You Don’t Have an Employment Contract for Your Employees?

Are you concerned that you don’t have an employment contract for your employees? “Employment at will” or “at-will employment” refers to an employment relationship in which either party can terminate the relationship without notice, at any time, and for any reason not prohibited by law. If you do not have an employment contract, “at-will employment” is presumed to be the relationship between you and your employee. However, despite being in an at-will employment relationship, state and federal law and court-created exceptions have limited the circumstances under which an employer can terminate its employees without being subject to challenge. Therefore, depending on the circumstances and the employee’s position, you may want to have an employment contract.

My RIA Lawyer: Good Compliance Is Good Business®

Don’t let yourself get caught in a nightmare scenario facing a wrongful termination lawsuit. If you are an RIA who would like help navigating the complexities of regulatory compliance and employee termination policies, contact My RIA Lawyer. At My RIA Lawyer, our regulatory geeks help financial advisors and firms navigate the legal complexities of the RIA world. Our compliance attorneys can walk you through every step of the process and help you develop a robust termination policy. We work virtually, long-distance, with clients from coast to coast. To schedule a consultation with our RIA compliance nerds, call us at (770) 462-2118 or email us at info@myrialawyer.com.

Copyright© 2021. My RIA Lawyer. All rights reserved.

The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm. It is not intended to substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

My RIA Lawyer
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Atlanta, GA 30339
(770) 462-2118

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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