A Wall Street firm wants to collect a $4 million breakup fee from a banker who never started his job. Judges will soon rule if that's legal.

A California appeals court will soon rule on whether Jefferies can demand a $4 million breakup fee from a banker who backed out of working there.

• Jefferies included a $4 million break-up fee in an offer letter to a banker.
• The Wall Street bank is demanding payment after Dean Decker stayed with Credit Suisse after signing.
• A California appeals court is expected to rule shortly on whether the break-up clause was legal.

A Wall Street bank inserted a $4 million break-up fee into an offer letter and demanded the payment after the employee backed out. Seven years on, a California appeals court is set to rule on whether the fee was legal.

In 2017, Jefferies included the clause to deter Dean Decker, a hotshot banker working for Credit Suisse at the time, from using its $10 million offer as leverage to secure higher pay and a promotion from his employer. Bloomberg reported, citing court filings, that he did exactly that.

Break-up clauses are commonly used in corporate mergers to discourage either party from getting cold feet or saying yes to a rival suitor. They also compensate the jilted party for the time and money spent crafting the deal.

Jefferies applied the same thinking to its contracts with Decker and others. But Decker's defense team has argued it's a different story to demand $4 million from an individual who's never received a paycheck from your firm, and borders on ransom.

"His compensation increased substantially, and he received a promotion solely because he signed the agreement with Jefferies," the investment bank and capital-markets firm said in a court filing.

"In fact, the only winner was Decker — both Jefferies and Credit Suisse were gamed (pun intended.)"

Decker told an arbitration panel that he fully intended to join Jefferies, but changed his mind after another colleague backed out of a deal to join Jefferies, Bloomberg said.

If the California judges rule against Decker, that could make companies feel more comfortable imposing penalties on prospective employees.

It would also highlight the financial dangers to individuals of parlaying an offer from another employer into a bigger paycheck from their current firm.

It's worth noting that Credit Suisse agreed to cover Decker's legal costs and any damages, meaning UBS is on the hook following a merger of the two Swiss banks last year.

In the meantime, Decker has moved to Banco Santander, a Spanish banking group.

Jefferies and UBS didn't immediately respond to a request for comment from Business Insider.