Ex-Edelman Advisor Sues Over Non-Solicitation Rules
What You Need to Know
The advisor alleges that company policies degraded his ability to serve clients.
One provision bars him from contacting past, present and potential clients for two years post-employment.
Felix Kwan also alleges that the firm breached his employment agreement.
A recently resigned Edelman Financial Engines advisor has filed suit against the firm and related entities, challenging the non-solicitation provisions in his employee contract as unenforceable.
The lawsuit, filed earlier in August in California Superior Court for Contra Costa County, also touches on shifts in custodial arrangements following Charles Schwab’s TD Ameritrade acquisition.
Felix Kwan started working at Edelman as an associate director, financial planning, in April 2012, and entered into an employment agreement with a non-solicitation provision, according to the complaint, which seeks a jury trial.
Barred from Soliciting Clients
The provision, among other points, purportedly prohibits Kwan from initiating contact with past, current or potential clients to induce them to leave the firm for two years following the end of his employment, and from accepting business from clients during that period, the suit says.
The employment contract’s non-solicitation provision is not enforceable under California laws banning non-compete and non-solicitation provisions, Kwan asserts.
“It is well established under those laws that, in the state of California, non-solicitation provisions that are not limited solely to the protection of trade secret information are void and unenforceable,” the complaint asserts.
In January 2016, Kwan and Edelman entered into a “contribution agreement” that also contains unenforceable non-solicitation provisions, the complaint alleges.
These provisions purportedly prohibit Kwan from soliciting any clients who received services from anyone within Edelman or its subsidiaries for 15 months after his employment ends, the suit says. They also bar him from accepting any business of the same or similar nature from any client who received services from anyone within Edelman even if the client wasn’t solicited, the complaint states.
Concern Over Client Service
Kwan, who alleges that Edelman took several steps to degrade his ability to serve his clients, resigned Aug. 2, notified his clients and quickly filed the lawsuit to obtain a judicial determination on whether the restrictive covenants in the agreements are enforceable and whether Edelman can prohibit him from accepting business from former clients.
He was executive director, financial planning, when he resigned, according to his LinkedIn profile.
Kwan seeks a court order enjoining Edelman from trying to enforce the non-solicitation covenants, as well as compensatory damages and a declaration that the non-solicitation provisions amount to unenforceable non-compete rules and therefore are void and unenforceable under state law.
Kwan’s LinkedIn profile indicates he started work this month as a partner and managing director at Prime Capital Financial.
Kwan alleges that Edelman failed to provide necessary resources to properly serve clients and outlined several steps he contends that the company took, starting with an unexplained 4% total compensation cut in 2019 or 2020.
Kwan was supported by a client service associate, or CSA, with the initials D.T., whom the suit describes as “an important part of Mr. Kwan’s team” and critical to “maintaining a high level of customer service and satisfaction.”
