The value of an insurance agency is nearly all intangible assets tied to the book of business and relationships with customers and insurance companies. This is a much different asset than equipment or a building, but requires protection nonetheless. If a producer or employee of an agency quits, how are you protected?
The answer should be that you are protected under the employment agreement that was signed by and between the agency and individual. But is that necessarily true?
Having reviewed many agreements and spoken with a number of attorneys, here are a few simple suggestions that may help protect your business.
1) Have a written agreement signed at the time of employment, or tie in compensation if you need one to be signed at a later date. Courts usually look to see if consideration was included as part of the employee signing the agreement.
2) Include clauses for: (a) non-competition, (b) non-solicitation, (c) non-piracy and (d) non-disclosure. Most businesses focus on the covenant not-to-compete, but it is the other three clauses that will be easier to enforce in a court as they delineate the legitimate business interests (per #3). In separating the four protections, you have a better chance of a judge severing one clause and leaving the rest in-tact also.
3) Within the context of the clauses of #2, identify the “legitimate business interests” that you are intending to protect, such as: (a) the goodwill of the business associated with a specific geographic or trade area, (b) relationships with customers (including those that are active, those that are currently being prospected and those that have been inactive for a reasonable period of time), relationships with other employees and other key, ongoing business relationships, (c) confidential information or “trade secrets” such as customer lists, customer data, policy manuals, training practices and marketing materials. Courts are reluctant to restrict an individual’s ability to seek employment but, however, do recognize the public economic benefit of protecting commerce.
4) Review your agency’s policies regularly with the employees as this keeps them aware of the rules and may help if you ever have to take a former employee to court as you will have “witnesses”.
5) Add an assumption clause in case you ever sell or transfer ownership of the business. While some states may not recognize an assumption if brought to court, having one in the agreement demonstrates that employees were willing to agree to it at the onset of their relationship with the business.
6) Keep copies of the agreements. Unfortunately, we have run into some agencies that simply lose the agreements over time.
Many, if not most, states will not enforce agreements that simply bar employees from seeking employment elsewhere. To make the non-competition clause more enforceable, consider narrowing the scope to a few specific activities like starting a competing business or targeting a certain class of business, and make the duration and range reasonable such as one year and twenty miles. If the court feels the restrictions put an unfair burden on the employee, then they will likely side with the employee and revise the terms or simply throw them out.
When preparing employment agreements, always have them reviewed by an experienced business attorney familiar with your state’s laws pertaining to restraints on trade and commerce. As I am not an attorney, this article is provided for informational purposes only and should not be construed as legal advice.