Introduction
The mortgage industry is constantly changing, and skilled loan originators and their teams are in high demand. Gone are the days when refinancing applications offered a solid loan pipeline to anyone with a license. Today’s market rewards those founders who can secure strong mortgage lines and financing outside of their employer’s existing portfolio. As mortgage lenders compete for this more discerning talent, originators are constantly enticed by new opportunities and potential bonuses. This organization, however, is not without legal risks for employees and employers.
An employee’s perspective
Generally, individuals or groups are allowed to prepare to move to a new employer, even if they work for their current employer. But when discussing your possible departure with other employees or customers, be careful. Do not do anything that could be interpreted as unlawfully interfering with your current employer’s contract or business relationship, either with existing employees or customers. Similarly, do not violate any provisions of your employment contract regarding solicitation of employees or customers. Allegations of interference and violation of non-solicitation provisions are among the most common claims brought against mobile workers.
When a group of employees leaves, it is wise to make all arrangements before any employee leaves for the new company. If one employee moved and the others stayed, the former employer may claim that the employee (who is now an agent of the new company) solicited the remaining employees on behalf of the employer, ultimately suspecting that the new employer has interfered with the work. the contractual relationship of the remaining employees with the former employer.
Similarly, moving employees should take care what information, if any, is transferred from one employer to another. Your employment agreement may prohibit you from taking or using your former employer’s confidential or proprietary information, and misuse of such information is often asserted in post-separation lawsuits. Even the customer and referral information you bring to the company is at risk of getting into trouble, especially if your employment agreement doesn’t specifically address the rights to that information. Most employment agreements, by their terms, will attempt to claim ownership of that information until it is incorporated into company systems or used during the course of your employment. The best time to address this issue is before you sign your employment agreement, clarifying that you own the client and referral source information you gathered before joining the company.
Active loan files generally must remain with your previous employer unless there is an agreement (with the borrower’s consent) to move the file. You can request documentation of the status of each file and you have the right to expect payment until your employment agreement entitles you to receive commissions from the pipeline loan. The best time to negotiate the terms of repayment of the original loan is at the beginning of the employment relationship, not during the termination.
Be prepared
Be prepared for your new employer to require you to sign an agreement guaranteeing that you are not in breach of your previous employment agreement. Therefore, it is important that you take care to protect yourself from any claims related to the improper solicitation or misuse of business opportunities or confidential information.
As an employer looking to hire proven talent, you will face some of the same concerns as those you hire. At the very least, you must ensure that the employee is not violating an existing employment contract by joining your company. Include in your written employment agreement that the employee does not submit confidential customer data, proprietary business information, misleading loan files, or improperly solicit other employees or customers. Consider including representations and warranties in the employment agreement that the new employee does not violate any prior employment agreement upon joining your company.
In today’s climate, it is common to pay an advance or bonus to attract talent. You want to make sure, however, that new employees aren’t collecting a bonus just to jump on another opportunity with a bonus. At a minimum, the bonus should be based on a minimum period of employment and performance metrics. Delaying bonus payments may not be a viable option when hiring new talent. Loan originators may rely on the bonus to cover the transition period between closing their pipeline at their previous company and starting commissions at the new company. In these cases, consider drafting an agreement that allows any bonus to be returned if the employee fails to stay with the company or meet certain key performance indicators. Another strategy is to get the bonus through a promissory note signed by the employee, making the bonus payment payable until the note is satisfied.
When new employees join your company, especially where you hire a team or branch office, you should clarify in advance how any existing marketing might be used. At the very least, you must ensure that any logos, trade names, trademarks, domain names, etc. it’s actually the new employees and not their previous employer. Your employees may use “Ace Mortgage Broker” as a separate brand, along with “sponsored by [former employer’s name].” Before allowing your new employees to use that brand in commerce, check to see if the name is registered to do business in any states and if it has been added to the NMLS registration of any other company. It’s not uncommon for loan officers to think they own a different “junior” owner, only to find out that their previous owner is theirs. Continued use by your company could lead to a claim of infringement.
Overall, loan originators and prospective borrowers benefit greatly by anticipating the potential legal hurdles that may accompany the move. Careful planning and transparency can avoid some of the risks and help manage the long-term costs of such measures.
Brian A. Nettleingham is a shareholder of Maddin Hauser.
Martin S. Frenkel is a shareholder and co-chair of the Financial Services and Real Property Litigation group at Maddin Hauser.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: [email protected].
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