Non-compete agreements have traditionally been a source of disputes between employers and employees. Earlier this year, the federal government proposed a regulation that would prohibit most non-compete agreements. However, they are still permissible under current law. One of them created friction between a crop insurance agency and one of its former agents.
The agent had joined the agency in 2012 after a 24-year career with another firm. She developed a sizable book of business with the other agency and at one time ran its crop insurance department. When she left in 2012, many of her existing clients followed her to the new agency. Several of them had no prior relationship with her new agency; they changed agencies because of their relationships with her.
The new agency did not directly compensate her for the accounts that followed her. In addition to her existing clients, she built a book of new clients with the agency, eventually servicing a combined total of around 110.
In 2015, the agency offered her an incentive bonus plan. One of the conditions for receiving the bonuses was that she had to sign an “Assignment, Nonsolicitation, and Nondisclosure Agreement.” It prohibited her from soliciting, selling to, or servicing any of her clients at the agency for two years after termination of her employment, whether voluntary or involuntary. Wanting to earn the bonuses, she signed the agreement.
The decision paid off; she received $75,000 in bonuses over three years. The agency gave her other benefits such as paid training, the opportunity to attend trade shows, paid-for continuing education, and a company credit card to use while traveling to build customer relationships.
In 2018, the agency restructured and laid off all of its retail division employees, including this agent. Many of her customers were angered by this news, and 40 of them left the agency.
Within six months she had landed a new position at a competing agency. Some of her former customers contacted her and asked her to write their crop insurance. She did not solicit their business but was happy to accept it when they contacted her, and she wrote new policies for them. Her previous agency sued her two months later.
The court awarded the agency a temporary injunction preventing her from selling to any of her former customers. She argued that the agency had no legitimate interest in the customers who followed her from her first agency, and that the agreement unfairly prevented her from competing. The court rejected those arguments. She countersued the agency and accused them of age and sex discrimination.
However, she also admitted in a deposition that she had continued to service some of the customers despite the court’s injunction, believing that it prohibited solicitation but not servicing. The agency asked the judge to hold her in contempt of court.
The following spring, the judge ruled that the non-compete agreement was enforceable. However, he found that the cause of the agency’s damages were unclear – it may have been the act of terminating her employment or it may have been her breach of the agreement. He ruled that a jury had to decide that question. Lastly, while he ruled that she had violated the terms of the injunction, he did not award the agency the damages it sought for the violation.
The legal record ended with this decision. It is likely the agency and the agent settled the matter out of court.
This agency had an enforceable non-compete agreement and a former employee who disobeyed a court order. However, it failed to recover damages because it lost the customers the minute it ended her employment. The customers were angry and loyal to her, and there was no way the agency was going to retain them.
A restructuring like the one this agency undertook can sometimes be necessary for the business to survive. However, there are costs to any business decision, and the potential loss of angry customers may be one of them. An agency contemplating this action may for good reasons decide to proceed anyway, but it should be aware that some business may be lost.
