Three producers at an independent insurance agency, including a former owner of its predecessor, left for a competitor and took their business with them. The agency sued the other agency and one of the producers.
In early 2001, the majority owner of the predecessor agency agreed to transfer 40% of his shares to the three minority stockholders, including the producer who became the subject of the lawsuit. The transfer was to occur one day prior to the closing date of the agency’s acquisition by another agency. That acquisition occurred shortly after.
In April, the producer signed an employment agreement with the acquiring agency. He continued to work there until 2018. That April, he and another employee resigned with no notice. The agency discovered that three-ring binders containing customer information were missing from his office. Subsequent investigations revealed that he had been seen leaving the office with the binders and other items. He also apparently tried to export a contact list for thousands of customers to his personal email address. However, security controls in the agency’s computer system prevented him from doing so.
On the day of their resignations, both employees sent emails to their personal addresses and blind copied agency customers to inform them of the forthcoming resignations and to provide links to their personal LinkedIn pages. The LinkedIn pages contained professional email addresses at their new agency. Both producers immediately began working at this agency.
The producer also texted another employee before resigning and invited her to meet with him and the other producer for breakfast the next day. Subsequently, the principal at the other agency contacted her. Not long after, she resigned from her position and joined the other agency.
Multiple clients followed the three out the door. Their original agency later claimed to have lost almost $950,000 in commission revenue after they left.
The agency sued the producer who had been a shareholder in the agency they acquired, claiming that he violated non-compete, customer solicitation, employee solicitation, and confidentiality provisions in his employment contract. They also sued the agency he joined for interfering in their contractual and employment relationships.
After a hearing, the trial court determined that the employment agreement the producer had signed was separate from the purchase agreement for his old agency. Employment agreements, including restrictive provisions, are subject to strict scrutiny by the courts because of the assumed unequal bargaining power of the parties. The judge found that the employment agreement did not include the sale of the agency as consideration in return for agreeing to the restrictive provisions. Indeed, he ruled that the purchasing agency had committed its own violations of the contract. Finding that the producer’s new agency had not interfered with the first agency’s business, the judge ruled in favor of the producer and his new agency.
The agency appealed the ruling, but in October 2021 the Georgia Court of Appeals agreed with the trial judge. The judges found that the agency sale agreement did not contain the restrictive provisions; only the employment agreement did. The employment agreement did not compensate him for the restrictive provisions and was identical to the agreements with other employees who had not been owners of the prior agency.
Agency purchase agreements often contain provisions designed to keep the former owners from leaving and competing with the buyer. This one apparently did not. If it had, the courts might have enforced the restrictive provisions against the producer. However, because they were in his employment agreement, and courts interpret these provisions in employment contracts narrowly so that employees can earn a living if they leave, the agency was unable to stop him from competing against them.
Courts will enforce reasonable restrictions in agency sale contracts. Had this agency written its purchase offer differently, it might have been better able to protect its business.
