Understanding the Fourth Circuit’s Decision in Salomon & Ludwin, LLC v. Winters
On August 12, 2025, the U.S. Court of Appeals for the Fourth Circuit delivered a landmark ruling in the case of Salomon & Ludwin, LLC v. Winters. This decision carries significant implications for the financial advisory sector, particularly regarding the mobility of financial advisors, the Broker Protocol, and employment covenants. The court’s ruling not only affirmed part of a preliminary injunction obtained by a Richmond-based wealth management firm but also vacated it for its implications on departing employees and their new firm.
Key Takeaways from the Fourth Circuit Ruling
The Fourth Circuit’s decision hinges on two principal takeaways:
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Employment Agreements Take Precedence: Even for firms participating in the Broker Protocol, employment agreements containing non-solicitation and confidentiality clauses hold firm, especially if these agreements assert their supremacy over the Broker Protocol.
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Narrow Definition of Raiding: The court clarified that the Broker Protocol’s “raiding” exception is narrowly defined. It applies solely to pre-existing firms targeting employees of another firm, not to employees who start their own competing venture.
Background of the Case
Salomon & Ludwin, a financial advisory firm, recruited four professionals (known as the “Individual Employees”) between 2009 and 2017. In 2018, Salomon joined the Broker Protocol, which is a voluntary agreement allowing departing advisors to take certain client information with them. However, the protocol explicitly makes exceptions for acts termed as “raiding,” permitting the prior firm to take legal action against a new firm for such practices.
In 2022, Salomon had the Individual Employees sign employment contracts featuring non-solicitation and confidentiality obligations, which included provisions labeling client information as a trade secret. These contracts prohibited solicitation of clients for two years post-departure and stated that they would take precedence over the Broker Protocol in cases of conflict.
In 2024, the Individual Employees launched a new firm, Albero Advisors (later rebranded as Founders Grove Wealth Partners), while still employed at Salomon, and subsequently resigned. On their resignation day, Founders Grove signed onto the Broker Protocol and began soliciting clients from Salomon, transferring hundreds of accounts valued at over $300 million.
When Salomon filed a lawsuit, a district court granted a preliminary injunction prohibiting the solicitation of clients, interpreting the actions as “raiding” under the Broker Protocol. The defendants subsequently appealed.
Fourth Circuit’s Legal Analysis
The Fourth Circuit’s ruling, articulated by Judge A. Marvin Quattlebaum, revolved around two major determinations:
Rejection of Broad “Raiding” Definition
The court determined that the district court’s broad interpretation of “raiding” was erroneous. It emphasized that raiding involves one entity targetting another’s employees. In essence, the Individual Employees did not engage in raiding when they established a competing firm, thus reversing the district court’s judgment on this aspect.
Primacy of Employment Agreements
Despite rejecting the raiding claim, the court upheld the injunction solely based on the employment contracts. By enforcing Virginia’s legal principle that contracts govern as written, the court concluded that the agreements invalidated any potential defenses under the Broker Protocol. This ruling reinforces that meticulously drafted non-solicitation and confidentiality agreements are likely to be upheld in similar cases.
Impact and Implications of the Ruling
The Salomon & Ludwin case offers invaluable lessons for firms in the financial services industry and beyond:
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Strengthening Contracts: Firms must recognize that well-construed non-solicitation and confidentiality agreements can be enforceable regardless of Broker Protocol affiliation. It remains imperative for financial firms to assess their existing agreements to ensure compliance and robustness.
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Clarifying Raiding Parameters: The ruling highlights that raiding applies strictly to illicit recruitment by competitor firms, not voluntary departures. This reduces the ambiguities for advisors considering leaving to form a new venture.
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Separation of Individual and Entity Liability: The court underscored that contractual injunctions may apply to individual employees but not automatically extend to new business entities formed. Thus, firms may need to strategize differently when seeking legal remedies against groups of departing employees.
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Recognition of Irreparable Harm: Loss of clients and reputation can constitute irreparable harm, reinforcing the need for protective legal measures in retaining customer loyalty.
Conclusion
The Salomon & Ludwin decision underscores the paramount importance of precise, enforceable non-solicitation agreements while delineating the confines of the Broker Protocol. Financial advisory firms are encouraged to review and fortify their contractual agreements against potential disruptions from departing advisors. Conversely, advisors considering their exit strategies should be cognizant of their rights and obligations under such agreements, as the interpretation of the law may not always be favorable.
By grasping the implications of this ruling, firms and advisors can better navigate the complex terrain of employment relationships in the financial services industry.
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