EXCLUSIVE: Merrill to Pay $13.6 Mln in Withheld Comp and “Stay” Bonuses to Fired Brokers
(Updates to clarify that settlement does not address the merits of broker terminations and to change the word “substantive” to “substantial” in the fourth paragraph.)
Merrill Lynch has agreed to pay $13.6 million to about 300 former brokers who were terminated “for cause” following Bank of America’s January 2009 takeover of the broker-dealer, according to a settlement agreement filed in federal court.
The settlement, which has not been publicly announced, resolves a class-action lawsuit brought in April 2015 that sought money left behind in long-term compensation plans and retention bonuses by advisers who were fired or “permitted to resign” between Jan. 1, 2009 and March 22, 2016. The suit, orchestrated by a plaintiffs law firm in Florida, does not address the merits of the terminations.
Many of the former brokers will receive 75% of the value of unvested shares and cash they had to abandon in the deferred comp programs, a high percentage indicating Merrill’s belief that its case was weak, according to some lawyers.
“One doesn’t settle at 75 cents on the dollar if one believes the complaint has no merit,” said David S. Rich, an employment lawyer in New York City who was not involved in the litigation. “The settlement indicates that Merrill thinks it would likely have been found liable for substantial damages.”
A Merrill spokesman did not respond to the observation.
The preliminary settlement, reached with the parties through a mediator and subject to final court approval, would pay an average of $45,333 before attorney’s fees and withheld taxes to each plaintiff in the class. Lawyers at Shumaker, Loop & Kendrick, which represented the brokers, expect to collect about $3.4 million and costs of $175,000, according to documents sent to former Merrill brokers and filings with the court in Charlotte, NC, where Bank of America is headquartered.
“It took some time but the lawyers found a gray area, and I think the outcome was fair,” said Roberto F. Garcia, one of two named plaintiffs, each of whom will receive an additional $20,000 for their efforts. “Most important, it also sets a precedent for future cases.”
Garcia, who was terminated in 2012 and now works at Mora Wealth Management in Miami, was referring to a part of the proposed settlement requiring Merrill to establish a review process for determining if brokers were fired “for cause” within the meanings of the firm’s compensation plans. Employees terminated for cause are not eligible to collect unvested benefits under Merrill’s deferred-bonus programs, even when vesting periods are accelerated.
In the seven years since the Bank of America takeover, several Merrill brokers have won awards worth millions of dollars because of the firm’s alleged breach of contract, but all voluntarily left “for good reason” following the merger agreement. They argued that the change in control required Merrill to accelerate the vesting schedule and awarding of their deferred compensation.
The preliminary settlement applies to brokers employed at Merrill as of September 15, 2008, when the merger was announced. It also distinguishes between those who were immediately fired after the merger occurred and those who left in subsequent months, indicating that some brokers may have been on a kind of hit list.
People terminated between January 1 and March 4, 2009 will receive 37.5% of the value of cash and shares that were in their deferred accounts while those forced out between March 5, 2009 and March 22, 2016, when the preliminary agreement was reached, will collect 75%, according to settlement documents.
The first group also will collect 12.5% of the ATP (Advisory Transition Program) bonuses that Merrill had offered to about 5,000 high producers — or have that amount of the balance of the forgivable ATP loan they received forgiven—while the second group is eligible for 25% awards. Under terms of the ATP, brokers had to repay the balances on their promissory note (loans) on being terminated.
Merrill brokers and managers for years could accumulate significant pay in the deferred bonus programs, which included the Capital Accumulation Award plan, the Growth Award plan, the Wealthbuilder plan and the Long-Term Incentive Plan for managers and producers. The settlement also entitles eligible plaintiffs to collect up to 50% of the value of awards granted in early 2009 for performance year 2008.
“It sounds like a very good result for the brokers, and it’s a reminder of how important it is for the brokers to have accurate information” on their registration forms to help mediate whether they were let go for cause, said Jake Zamansky, a plaintiffs lawyer in New York City who was not involved in the class-action.
Eligible former Merrill brokers must return claim forms by July 20, 2016, to receive their awards.