ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

WHAT TO DO IF A PRODUCER LEAVES

If you’ve been reading the PIPELINE for a while, you know that we aid agents with the design of producer contracts including Non-Compete and Non-Piracy Agreements that are likely to work for the agency. But thousands of agents still have producers in place with absolutely no contracts or Non-Compete Agreements. What happens if one of these producers leave the agency?

The fact is that unless the producer is an officer of the agency (properly elected through the by-laws of the corporation), nothing stops the producer from leaving the agency and contacting any clients to solicit their insurance programs. If the producer is an officer, he has a fiduciary responsibility to protect the interest of the corporation. So if he takes any action against the agency while he is still an officer, that action can be held against him in a court of law (including the prohibition of his taking agency clients). However, the key is not the solicitation of clients. It’s the fact that he took action against the corporation for which he was an officer and bore a fiduciary responsibility.

The reality of a producer’s departure is that it is quite often EMOTIONAL to both the producer and to the agency owner. One (or both) feel wronged and action against the other is considered “pay back”. The reality is that “pay back” is always expensive to both parties and satisfies no one in the end (except the attorneys for both).

The better course of action for agencies in which the producers are not obligated by contractual obligations with firm Non-Compete and Non-Piracy Agreements is to either sell the desired book of business to the departing producer or to agree to compete on those accounts. What the producer CAN NOT do is take proprietary information from the agency to support his competition.

This means that file information, even the information that is generated by the very producer who is leaving, was accomplished while the producer was employed and being paid for the creation of that information. That information, on paper or in digital form, belongs to the agency. It is a part of the client file and is private and proprietary to the agency. If a producer takes files, expiration lists, digital or print copies of file information, or even name and address information, that a theft of information from the agency.

So if your producers do not have employment agreements, producer agreements, Non-Compete Agreements or Non-Piracy Agreements, they should all be given a letter explaining that a departing employee can only take with him information that he simply recalls about any agency clients. Nothing tangible can be taken from the agency should an employee leave the agency’s employ.

Will a producer successfully compete against an agency? The answer is “sometimes, but not as often as they would like or expect.” If the producer sold insurance but did not establish close personal relationships the chances are that the client is more concerned about the level and value of his insurance coverage than protecting the person who sold them insurance. On the other hand, if the producer followed the Asset Protection Model or any form of relationship selling that gives him a close tie to the client, the agency would be better served (and so would the client) by cutting a deal with the producer allowing him to buy the accounts at a fair price. If, on the other hand, the agency has CSRs or Account Executives or other producers or owners who have established relationships with the departed producer’s clients, then the agency has a fair opportunity to re-establish a producer relationship with another agency staff member and could fairly compete against the former employee.

Agencies have a better chance of claiming ownership of clients and competing for their retention of they have treated the producers as employees, paying payroll taxes, benefits and reimbursing business expenses. If the agency has treated the producer as a contractor in which the producer was responsible for his own taxes, insurance and business expenses, a legal battle could be decided in favor of the producer because the agency acted as if he was an independent contractor (even though IRS rules make P&C producers treated as employees in most cases).

So our best advice is:

1. NEGOTIATE, DON’T LITIGATE!

2. HIRE EVERY PRODUCER UNDER AN EMPLOYMENT AGREEMENT WITH NON-COMPETE AND NON-PIRACY CLAUSES.

3. IF YOU DON’T FOLLOW 2 (ABOVE) AT LEAST HAVE THE PRODUCER SIGN AN AGREEMENT THAT ALL BUSINESS GENERATED WHILE AN EMPLOYEE OF THE AGENCY BELONGS TO THE AGENCY.