An insurance agency sued two Georgia insurance producers for hiring away some of its employees after they left and started a new agency.
The two had signed producer agreements with the agency that contained non-solicitation-of-employees clauses. That clause prohibited them, while their contracts were in effect and for two years after termination, from hiring any of the agency’s employees.
In June 2021 the producers terminated their contracts. Some time later, they formed a new agency. The appellate court’s opinion did not provide details of what happened next. However, the former agency sued both producers and their new company for breach of contract, among other accusations. The producers, in turn, countersued the agency on several grounds. They also asked the court to declare that the non-solicitation of employees agreements were unenforceable.
The trial court found that the non-solicitation agreements did not limit their scope to defined geographical areas. Therefore, the court ruled that the agreements did not comply with Georgia state law, rendering them invalid and unenforceable regarding the producers’ conduct after termination of their contracts. The agency appealed.
In June 2023, a three judge panel of the appeals court agreed with the trial court, with one judge dissenting. Georgia has a restrictive covenants act that applies to contracts between employers and employees. Although the producers’ contracts stated that they were independent contractors, the Georgia restrictive covenants act defines “employees” as including independent contractors. Therefore, the law applied to the contracts between the agency and the producers.
The majority of judges found that the act unambiguously required a non-solicitation of employees agreement to contain a specific geographical limitation. The provisions in these two contracts did not have one. Quoting a prior court opinion, they wrote about the agreement, “Under its terms, [the producers] would be prohibited from [hiring or soliciting] any [agency employee] anywhere in the world. Such a result is clearly unreasonable under the statute, rendering the [covenant] void and unenforceable.”
The dissenting judge believed that the description of whom the producers could not solicit was enough to meet the law’s requirements. He was outvoted by his two colleagues.
The agency these producers left is apparently one that operates countrywide. It probably used the same contract in all its offices in the country. They did not recognize that relevant laws vary from state to state. Contract language that would hold up in court in one state would not in Georgia.
An independent insurance agency that wants to include an enforceable non-solicitation of employees provision in a producer contract should take note. When drafting these agreements, they must contemplate the relevant laws in each jurisdiction where they operate. If the agency hires producers in only one state, this is a relatively simple matter. However, many agencies hold licenses in multiple states and may have resident producers in many of them. This makes drafting employment agreements much more complicated. It is wise to retain legal counsel qualified to practice employment and contractual law in the state in question. With an aging insurance workforce, agencies have a legitimate and urgent interest in preventing poaching of their employees. Well written producer agreements can provide that protection. This agency did not have one; as a result, their former producers can make employment offers to any agency employee they want
