BAC Bank of America Corporation

Bank of America Corp. agreed to a $12.8 million settlement with a group of former Merrill Lynch advisers who had alleged that the bank wrongfully withheld some of their bonus payments.

The settlement, approved Tuesday by a U.S. District Judge in North Carolina, will give cash payments to about 270 former Merrill Lynch advisers, with average payouts of about $47,000 each, according to the law firm that handled the case for the former employees.

The advisers had all worked at Merrill before it was bought by Bank of America during the financial crisis, and all were terminated at some point after the merger.

The issue, according to the advisers' lawsuit, was that the bank failed to follow the proper procedures when it terminated the advisers "with cause," which made them ineligible to collect money they had earned through long-term incentive plans that had yet to vest.

In court documents, Bank of America denied the allegations and said it didn't wrongfully withhold funds from the former employees. A bank spokesman declined to comment further.

The settlement underscores the years-old tension between Merrill's "thundering herd" of 14,400 advisers, some of whom chafed at being scooped up by North Carolina-based Bank of America. It also highlights industrywide questions about the worth of wealth-management divisions, which can provide steady revenue but with high costs, largely because of advisers' pay.

According to the former Merrill employees, the bonus contracts required Bank of America to notify Merrill employees who were going to be terminated with cause and give them the chance to defend themselves. According to the former employees, the bank didn't do so.

Michael Taaffe, the lead attorney on the case, said in an interview that Bank of America was also "overly generous" in how it defined cause, as a way to save money. Mr. Taaffe said the settlement excluded any advisers who had been suspended for more than a year or barred from the industry by the Financial Industry Regulatory Authority, the brokerage industry's self-regulator.

Mr. Taaffe is head of broker-dealer litigation at Shumaker, Loop & Kendrick LLP, which has previously represented other former Merrill Lynch advisers, including two who also filed claims over unpaid compensation and were awarded more than $10 million in 2012.

Shumaker, Loop & Kendrick estimates that another 6,500 advisers currently at Merrill are also eligible for these payouts. The settlement agreement reinforces the pay contracts, requiring Bank of America to follow certain procedures if it plans to terminate an adviser with cause.

Write to Christina Rexrode at christina.rexrode@wsj.com

(END) Dow Jones Newswires

September 08, 2016 15:55 ET (19:55 GMT)

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