If you were a captive agent for a particular carrier, and your contract promised you a hefty payment after it was terminated, but only if you met specific conditions, would you still expect it after you violated those conditions? An Idaho agent did.
He represented a regional carrier for more than 20 years. At the time of his appointment in 1995, the carrier gave him a memo explaining that he would be eligible to receive a “service bonus commission” after termination if he:
- Met annual conditions, and
- Did not compete with the carrier for at least one year after termination.
A 2011 amendment to the memo explained that the carrier would place the service bonus commission credit on deposit at the end of each year of service. It would not be payable until he complied with all plan requirements, terminated, and fulfilled the no-competition requirement. It further stated:
“The no competition restriction referred to above means that the agent shall not own, operate or be employed as an agent, independent contractor or employee of any other insurance company … for a period of one year from the date of termination within a radius of fifty (50) miles of the agent’s residence at the time of termination. A violation of the no competition restriction will result in forfeiture of the service bonus commission and interest credited.”
By early 2016, the agent was eligible for a service bonus commission of $251,431.96. However, in May the carrier terminated his contract for alleged “dishonesty.” He had apparently told the carrier that his primary residence address was a property where he didn’t actually live. He was part owner of the property but he did not reside there. Citing this bit of misinformation, the carrier’s lawyer wrote that they had no obligation to pay the bonus because of a dishonesty clause in the memo. He also reminded the agent of the non-competition condition that would apply even if he were eligible.
The agent was subject to two non-compete clauses. His contract prohibited him from competing against the carrier for 90 days after termination. The service bonus commission memo said that he would be eligible for the bonus if he did not compete against them for a year. Thus, he could compete with them starting on day 91 without violating the contract, but he would forfeit eligibility for the bonus.
When the 90 days were up, he went to work for a competitor, using a list of 578 names and addresses. Some of them were customers of his former carrier. He compiled the list from memory, records in his phone contacts, old commission statements and old calendars.
He also sued his former carrier for the bonus commission. The carrier counter-sued him, claiming that he had stolen trade secrets when he compiled his list. The trial court ruled that the non-competition and forfeiture conditions in the service bonus memo were enforceable, and the carrier therefore did not have to pay the bonus. It also ruled that the agent did not improperly use carrier trade secrets. Both sides appealed.
The state Supreme Court upheld the ruling. The memo, it said, established his eligibility for a bonus; it did not promise one. They also noted that he had the opportunity to disprove the allegation of dishonesty. “Had he successfully done so, while waiting for the one-year period to run,” they wrote, “he would have been eligible to receive the service bonus commission.” They also upheld the ruling that he did not improperly use the carrier’s trade secrets.
We don’t know whether the reason for his termination was legitimate. However, there is no question that he disregarded the non-competition clause and went to work for a competitor before the one-year period was over. His argument that he should still receive the bonus in spite of this grasped at straws. In fact, the Supreme Court described one of his arguments as a “last-gasp theory.” He knew that violating the non-competition clause could cost him a quarter of a million dollars. It should have been no surprise when the carrier invoked the contract. Every agency, whether captive or independent, must be aware of the contracts binding it, and the potential consequences of violating those contracts.
