Two employees of a wholesale insurance brokerage left for a competitor. Claiming that they had violated the restrictive covenants in their employment contracts, the brokerage sued them and their new employer.
The wholesaler hired the two in March 2018. One was a producer/underwriter responsible for marketing insurance products to retail agencies and brokerages. The other was his assistant, providing support services such as emailing quotes to retailers.
By early 2022, both were disenchanted with their work for the wholesaler and became open to new opportunities. Those opportunities presented themselves in April when the vice president of operations for a rival wholesaler contacted the producer/underwriter about coming to work for them. He accepted their employment offer in late April, gave two weeks’ notice to his current employer in early May, and was fired on the spot. He started his new job, performing essentially the same duties, in late May.
Independently, the rival recruited his assistant and convinced her to move as well. She resigned her position in early May and started her new job shortly after.
Both individuals signed employment contracts as a condition of working for their former employer. For unexplained reasons, the producer’s contract said that New York State law applied to it, while the assistant’s contract said it was bound by Pennsylvania law. Both contracts restricted the employees’ post-employment activities for 18 months, prohibiting them from directly or indirectly:
- Soliciting any policies in effect with their employer on the date of termination
- Soliciting or accepting any renewals of any policies in effect on that date
- Accepting placement of any policy involving an existing or active file of the employer as of the termination date, “even in the event an unsolicited Broker of Record or Agency of Record letter is received …”
- Contacting any insurance carriers regarding any of the employer’s active policies or renewals
- Contacting, dealing, or transacting any business with any of the employer’s retail agents or brokers.
After reviewing the agreements, their new employer advised the two that they could not solicit or accept their former employer’s business but could work with its retail agents and brokers. Their former employer didn’t see it that way. After the producer began working with “over two dozen” retailers with whom he worked at his old firm, that firm sued him, his assistant, and their employer for allegedly breaching the restrictive covenants. The employees and the other wholesaler argued that the covenants were overly broad and therefore unenforceable.
Both sides asked the court for “summary judgment,” a ruling in their favor based on the law where the facts are undisputed. In February 2025, the judge ruled that the restrictions were indeed too broad. She noted that the covenants extended “to all of Plaintiff’s business and relationships with agents and brokers, regardless of whether (they) had any contact or relationship with those agents or brokers before or during the course of (their) employment with Plaintiff.” Neither state law permitted that.
However, she noted that both New York and Pennsylvania laws permitted courts to narrow the scope of restrictive covenants to make them enforceable. Both states required any modification to be done “on a case-by-case basis, focusing on the employer’s conduct in imposing the terms of the agreement.” Since neither side had provided any evidence of the first employer’s conduct, she ruled that summary judgment was inappropriate and ordered a trial. It is probable that the two sides are negotiating a settlement to avoid letting a jury decide.
This case shows again that agencies, whether retail or wholesale, must be very careful when drafting restrictive employment covenants. The judge here acknowledged that the wholesaler had a legitimate business interest to protect. Their efforts to protect them, however, went too far. The result was avoidable litigation. Agencies should work with knowledgeable employment law attorneys when drafting their contracts to keep these disputes out of the courts.
