Articles By Topic
By Topic: Hedge Fund Employment Contracts
From Vol. 9 No.45 (Nov. 17, 2016)
Trending Issues in Employment Law for Private Fund Managers: Non-Compete Agreements, Intellectual Property, Whistleblowers and Cybersecurity
Attracting, compensating and retaining talented employees is a critical part of a fund manager’s business. Managers routinely use non-compete agreements and other measures to ensure that employees do not harm the manager’s business when they depart. A recent program presented by EisnerAmper offered an overview of the law of non-compete agreements and insight into other common employment issues that private fund managers face, including portability of track records, status of employees, protection of intellectual property and cybersecurity. Moderated by EisnerAmper director Frank L. Napolitani, the program featured Cole-Frieman & Mallon partner John Araneo. This article highlights the key takeaways from the presentation. For additional insight from EisnerAmper, see our three-part series on how hedge funds can mitigate FIN 48 exposure in certain jurisdictions: Europe (Mar. 17, 2016); China (Mar. 24, 2016); and Australia and Mexico (Mar. 31, 2016); as well as our two-part series on hedge fund audit holdbacks: “Operational Considerations” (Sep. 10, 2015); and “Implementation” (Sep. 17, 2015).Read Full Article …
From Vol. 9 No.44 (Nov. 10, 2016)
Impact on Private Fund Advisers of Obama Administration’s and State Lawmakers’ Actions to Restrict Use of Non-Compete Agreements
A growing drumbeat of government hostility toward non-compete agreements may portend state-level legislation that would restrict employers’ use of such agreements. While the impetus behind this movement primarily appears to be a concern for low-wage employees, some of the proposals sweep wide and would affect the abilities of private fund advisers to impose and enforce non-competes against their professional employees. In a guest article, Anne E. Beaumont and Lance J. Gotko, partners at Friedman Kaplan Seiler & Adelman, review the call to action by the Obama Administration for state legislators to significantly curtail, through legislation, an employer’s ability to use and enforce non-compete provisions; the responses from various state policymakers to this request; and the likely impact on private fund advisers if legislation that is substantially similar to the proposals were adopted. For additional commentary from Beaumont and Gotko, see “How Hedge Fund Managers Can Balance Protecting Confidential Information Against Complying With Whistleblower Laws” (Aug. 25, 2016). For further insight from Beaumont, see our three-part series on Kovel arrangements: Part One (Oct. 20, 2016); Part Two (Oct. 27, 2016); and Part Three (Nov. 3, 2016). For more on non-competes and other restrictive covenants, see “What the NLRB Complaint Against Bridgewater Means for Hedge Fund Manager Employment Agreements” (Sep. 8, 2016); “District Court Decision Suggests That Overly Broad Restrictive Covenants Will Not Be Enforced in Employment Agreements in the Wealth Management Industry” (Apr. 26, 2012); and “Non-Competition and Non-Solicitation Provisions and Other Restrictive Covenants in Hedge Fund Manager Employment Agreements” (Nov. 23, 2011).Read Full Article …
From Vol. 9 No.39 (Oct. 6, 2016)
To many hedge fund managers, there is little more important than protecting the fund’s trade secrets – whether they are trading models, track records, client lists or trading positions – from wrongful disclosure. On May 11, 2016, hedge fund managers were given a powerful new tool to protect this proprietary information when President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). See “DTSA Provides Hedge Fund Managers With Protection for Proprietary Trading Technology and Other Trade Secrets” (Jun. 23, 2016). In a guest article, David I. Greenberger, partner at Bailey Duquette P.C., describes how hedge funds can take full advantage of the protections and remedies the DTSA affords – including the right to recover punitive damages and reasonable attorney’s fees – by complying with its requirements to provide certain notices to their employees, consultants and contractors. Additionally, Greenberger suggests that hedge fund managers take immediate steps to ensure that any agreements they enter into with such individuals related to trade secret usage are in writing and contain the requisite notices. Finally, he describes how managers should modify operative agreements that existed prior to the enactment of the DTSA to include the necessary immunity notice provisions. For more on protecting trade secrets, see “Procedures for Hedge Fund Managers to Safeguard Trade Secrets From Rogue Employees” (Jul. 21, 2016); and “How Can Hedge Fund Managers Protect Themselves Against Trade Secrets Claims?” (May 16, 2014).Read Full Article …
From Vol. 9 No.37 (Sep. 22, 2016)
Steps Hedge Fund Managers Can Take in Light of NY Attorney General’s View That Certain Non-Compete Clauses Are Unconscionable
In a move that caught many by surprise, the New York Attorney General recently announced that it had settled investigations with two companies regarding their use of non-compete provisions in employment agreements. While neither of these settlements was with an investment management firm, the broad and unfavorable statements made by the New York Attorney General concerning non-competes should not be ignored by hedge fund managers. To understand the impact of these settlements on alternative asset managers, along with what, if any, steps managers should take to protect themselves from similar enforcement actions, The Hedge Fund Law Report interviewed Richard J. Rabin, partner at Akin Gump and head of the firm’s New York labor and employment group. For additional insight from Rabin, see “What the NLRB Complaint Against Bridgewater Means for Hedge Fund Manager Employment Agreements” (Sep. 8, 2016). For a broader discussion on restrictive covenants in employment agreements, see “Non-Competition and Non-Solicitation Provisions and Other Restrictive Covenants in Hedge Fund Manager Employment Agreements” (Nov. 23, 2011).Read Full Article …
From Vol. 9 No.35 (Sep. 8, 2016)
A complaint filed by the National Labor Relations Board (NLRB) against Bridgewater Associates (Bridgewater) cites several provisions from a Bridgewater employment agreement that allegedly violated the rights of employees under the National Labor Relations Act (NLRA). The provisions in question – addressing issues such as confidentiality, non-disparagement and waiver of rights to bring certain actions – have been commonplace in employment agreements generally, particularly at hedge funds, for many years. The NLRB’s complaint illustrates a striking disparity between regulators’ standards and expectations, as codified in the NLRA, and employers’ grasp of what constitutes a legal policy or practice. This article provides a summary of the NLRB complaint, along with analysis from law firm partners and other experts in employment-related matters affecting hedge funds regarding the steps managers can take to anticipate and avoid similar administrative actions. For analysis of other restrictive covenants in employment agreements, see “District Court Decision Suggests That Overly Broad Restrictive Covenants Will Not Be Enforced in Employment Agreements in the Wealth Management Industry” (Apr. 26, 2012); and “Schulte Roth & Zabel Partners Discuss Non-Competition and Non-Solicitation Provisions and Other Restrictive Covenants in Hedge Fund Manager Employment Agreements” (Nov. 23, 2011). For analysis of a civil complaint filed by Bridgewater against two former employees, see “Bridgewater Associates Sues Ex-Employees Who Allegedly Seek to Trade Off Its Name and Goodwill” (Oct. 30, 2014).Read Full Article …
From Vol. 9 No.29 (Jul. 21, 2016)
In an era when high-profile data theft cases have shaken some people’s faith in the security of personal information entrusted to fund managers, it is critically important for firms to take steps to detect, prevent and address such thefts by rogue employees. This is of particular urgency for hedge fund managers now that the SEC has stepped up its focus on cybersecurity. See “Growing SEC Enforcement of Hedge Fund Managers Requires Greater Focus on Cybersecurity and Financial Disclosure” (Jul. 7, 2016). Data security and the measures that can help safeguard trade secrets and sensitive information were the focus of a recent Hedge Fund Association (HFA) panel discussion. The participants were Mark Sidoti, director of the business and commercial litigation department and chair of the e-discovery task force at Gibbons; Paul Neale, chief executive officer of DOAR, Inc.; and Lisa Roitman, general counsel of Litespeed Partners. This article highlights the most salient points for hedge fund managers raised by the panel. For additional insight from the HFA, see “HFA Symposium Offers Perspectives From Cybersecurity Industry Professionals on Preparedness, Vendor Management, Cyber Insurance and Cloud Services” (Jul. 7, 2016); and our two-part series on the recent Global Regulatory Briefing, offering insight from U.S., U.K. and offshore regulators: “Best Ways for Hedge Fund Managers to Approach Regulation” (May 12, 2016); and “Views on Cybersecurity, AML, AIFMD, Advertising and Liquidity Issues Affecting Hedge Fund Managers” (May 19, 2016).Read Full Article …
From Vol. 8 No.31 (Aug. 6, 2015)
New York Appeals Court Rules on Applicability of New York Labor Law to Hedge Fund Incentive Compensation
A recent decision by New York’s Appellate Division, First Department (Manhattan) is of great significance to hedge fund managers doing business in the state. The ruling is important to hedge fund managers because it applies to the type of incentive-based compensation that is often made available to many financial industry employees – which typically depends on the overall success of the business or a team of employees – and determines whether such compensation merits the special protections provided by the Labor Law. In a guest article, Sean R. O’Brien and Sara A. Welch, managing partner and counsel, respectively, at O’Brien LLP, discuss the Court’s decision in light of the Labor Law, as well as the ramifications of the ruling on the hedge fund industry. For more from O’Brien and Welch, see also “Hedge Fund Incentive Compensation Not Subject to Wage Claim under New York Labor Law,” The Hedge Fund Law Report, Vol. 7, No. 14 (Apr. 11, 2014); and “How Can Hedge Fund Managers Protect Themselves Against Trade Secrets Claims?,” The Hedge Fund Law Report, Vol. 7, No. 19 (May 16, 2014). For commentary on other rulings relating to hedge fund employee compensation, see “New York Court Assesses the Validity of a Former Portfolio Manager’s Claim against a Fund Management Company for Unvested Performance Compensation,” The Hedge Fund Law Report, Vol. 8, No. 18 (May 7, 2015); “New York Federal District Court, Applying ‘Faithless Servant’ Doctrine, Allows Morgan Stanley to Recoup Entire Compensation Paid to a Former Hedge Fund Portfolio Manager Who Admitted to Insider Trading,” The Hedge Fund Law Report, Vol. 7, No. 5 (Feb. 6, 2014); and “How Can Hedge Fund Managers Use Profits Interests, Capital Interests, Options and Phantom Income to Incentivize Top Portfolio Management and Other Talent?,” The Hedge Fund Law Report, Vol. 6, No. 33 (Aug. 22, 2013).Read Full Article …
From Vol. 2 No.28 (Jul. 16, 2009)
Citadel Investment Group Sues Former Employees Alleging Violations of Non-Disclosure, Non-Solicitation and Non-Compete Agreements
On July 9, 2009, Citadel Investment Group (Citadel) filed a lawsuit in the Circuit Court of Cook County, Illinois against three of its former employees – Mikhail Malyshev, Jace Kohlmeier and Matthew Hinerfeld – and Teza Technologies LLC, a corporation founded by those three former employees. Citadel’s complaint alleges that the individual defendants violated non-disclosure, non-solicitation and non-complete covenants in their employment agreements with Citadel, as well as the Illinois Trade Secrets Act, by misappropriating trade secrets and other confidential data relating to Citadel’s high frequency trading technology. We describe the factual and legal allegations in the complaint.Read Full Article …
From Vol. 1 No.7 (Apr. 15, 2008)
- Original, expired written employment agreement included disclosure restrictions.
- Subsequent unsigned drafts included non-compete and confidentiality clauses, but employer failed to produce a signed copy.
- Employer alleged employee orally and repeatedly renewed contract.
- After receiving $450,000 alleged “advance,” employee resigned and began working for competing fund management firm, but employee asserted payment was for work already performed.
- Employer sued for fraud, breach of contract, misappropriation of trade secrets and breach of confidentiality.
- Affidavit of existence of lost executed contract failed to satisfy statute of frauds.
- Employee asserted his employment was “at-will” and thus he was not bound by non-compete clause.
- Employer failed to prove enforceable written employment contract and so failed to raise any genuine issue of material fact.