After several producers left an agency for another agency, the former agency sued the producers and their Agency.
The agency had purchased an agency in 2017 and subsumed its operations. The purchaser offered the seller’s employees positions with the same clients they handled before the purchase. The employees were also offered retention bonuses, and one producer was given an acquisition bonus. The offers were contingent on the employees accepting employment agreements. Those agreements included confidentiality, non-solicitation, and non-compete agreements, plus an agreement not to solicit agency employees for employment. The confidentiality agreement was for five years; the others were for two.
The contracts went beyond these typical agreements. Two of the producers “acknowledged in their agreements that their services were ‘of a special unique, and extraordinary character[,]’ that ‘it would be extremely difficult or impracticable to replace such service[s]’ and that ‘any damage caused by (their) breach of [the limited covenants] of the Agreement would result in irreparable harm to the business of the Company for which money damages alone would not be adequate. . . .’ The producers also “agreed that if they violated the limited covenants section of the agreement,” the agency would be entitled to seek injunctions against them.
In 2022, a competing agency started recruiting this agency’s employees. The first agency claimed that the second one solicited at least 58 of its employees and sent them at least 240 communications on LinkedIn. The two agencies had a history of litigation over alleged employee poaching.
In late January 2023, these producers and their entire service teams abruptly resigned. The producers’ contracts required 60 days’ advance notice of resignation, but these resignations were effective immediately. Within a day, the employees’ LinkedIn profiles showed that they were now working for the competing agency. More than 100 broker of record letters naming the competing agency as the new broker followed.
The first agency sued the other agency along with the four producers and their spouses. They claimed all four producers violated their contracts and that two of them acted in bad faith, dealt with them unfairly, and breached their duty of loyalty. In addition, they claimed the producers and the other agency interfered with the contracts, and they accused the other agency of aiding the breach of the duty of loyalty.
All of the defendants asked the court to dismiss the suit. The judge said no.
She found the breach of contract claims “plausible.” She also ruled that one of the producers had a duty of good faith and fair dealing to his former agency. “The conduct alleged here,” she wrote, “constitutes a breach of that duty. Specifically, this conduct impaired the benefits (the agency) would receive from the contract—that their employees would not leave and take their clients to a competitor.”
She also pointed to the mass resignation as evidence of a breach of the duty of loyalty to their employer. “There are sufficient allegations showing that (the producers) began to compete with (the agency) before their departure,” she said. “In turn, these allegations form a plausible claim that these Defendants breached their duty of loyalty to (the agency.)”
Lastly, she refused to dismiss the claims against the competing agency, pointing to its outreach to dozens of the first agency’s employees and repeated LinkedIn messages. This constituted an attempt to help the producers breach their contracts and their duties of loyalty.
The judge issued her opinion in December 2023. The litigation is ongoing.
This situation is unusual in that it appears that these two competitors are in a talent war with each other. Most cases of producers jumping agencies are not at this scale. However, this case illustrates why it is important for any agency to have written contracts with its producers. There may come a time to enforce them. These producers signed contracts, those contracts contained promises, and the producers broke those promises with the enthusiastic help of a competing agency. A court has now said they cannot do that.
