Agency sues competing Agency & Producer over Trade Secrets
- November 11, 2015
Talent is growing more scarce in the insurance industry. In addition to competing for accounts, insurance agencies often compete for the same producers. These struggles sometimes turn bitter. A rival agency snaps up a producer. It suddenly makes inroads with the first agency's clients.
Eventually, the two agencies take their fight into a courtroom. A judge or jury is asked to determine which of them is right. Two agencies and a producer in the New York City area found themselves in this exact situation.
The producer worked for an agency under a written contract. The contract prohibited him from:
· Revealing any confidential information or trade secrets he learned of while working there
· Soliciting any of the agency's clients for five years after his employment there ended.
The producer resigned his position and went to work for another agency. The first agency then sued both the producer and his new employer. They accused the producer of using their office and equipment, while he was still working for them, to solicit their clients for the new agency. They also claimed that he took confidential information and trade secrets out of their office, with his new agency's knowledge and encouragement. Armed with with this information, the first agency said, the producer and his new agency solicited their current and prospective clients. They demanded monetary damages and an injunction against further activities by the producer and the second agency.
The producer and his new employer argued that the contract between the producer and his previous employer was not enforceable. They also argued that the materials the producer took from the first agency were not confidential information or trade secrets. Siding with them, the trial court refused to grant the injunction. Four months later, it dismissed the case against the second agency and all but one claim against the producer. The first agency appealed.
The appeals court also refused to grant the injunction, but it reinstated the case against the producer and the second agency. The court noted that the trial court left open the possibility that the first agency could win a permanent injunction in a trial. It also pointed out that the trial court was asked to consider a motion to dismiss the case. Because of this, it did not conduct a factual investigation as to whether the materials the producer took were confidential. The records were not attached to the record for the appellate court to review.
The court concluded that the evidence showed a possibility that the first agency's accusations were true. It reinstated the claims against both the producer and his new agency and returned the case to the lower court for a jury to consider.
This decision was not a win for either side. The most the first agency got was the possibility of a jury trial. There was no guarantee that they would convince a jury. The producer and the second agency were unable to put the matter behind them.
Producers leave agencies and join new ones every day of the week. They and the agencies who employ them can avoid legal disputes like this by following some guidelines.
Do not make non-compete agreements overly-broad. The producer and the second agency argued that the contract with the first agency was unenforceable in part because of the five-year non-compete period. The trial court actually said that “the non-compete clause of the Agreement appeared over broad, and to impose an undue hardship on (the producer).” The court still held the contract to be enforceable, but the harsh nature of the non-compete clause invited a lawsuit.
Be specific about what constitutes “confidential information.” The two sides got into a legal argument over whether the materials the producer took were confidential information or trade secrets. The more specific contracts get about what is and is not confidential, the less wiggle room there is for interpretation.
When hiring producers, review any contracts they have with their current agencies. The court's opinion did not say whether the second agency knew what was in their producer's previous contract. If they did not, they inadvertently walked into a legal minefield. Hiring agencies should know exactly what they are getting into when they consider new hires.
The talent wars will inevitably lead to disputes between agencies. However, those disputes do not have to wind up in court. A few sensible steps by all parties can keep these fights from getting out of hand.