Over the past several years, insurance agency mergers and acquisitions activity has accelerated. Some small independent agencies are purchased by large national firms. In one such purchase, the buyer and an employee of the seller went to court over separation pay.
The employee worked for a New Jersey company starting in late 2016. The company had two entities – a retail insurance agency and a managing general agency, both focusing on the hospitality market. The employee was the operations manager, reporting to the company owner.
In 2019, the owner entered into discussions with a large national brokerage about an acquisition. The operations manager learned of this approximately a month before the deal closed. As he understood the arrangements, his agency would merge into one of the brokerage’s subsidiary businesses and he would report to his current manager and indirectly to a particular individual. He told that person that he would consider staying on after the acquisition once he received a contract.
There is some dispute as to whether the employee passed on alternative employment offers during the period before the sale closed. He did assume that he would continue reporting to the owner of the selling agency in the merged organization.
The deal went through in the spring of 2019. The operations manager found himself reporting to both the former owner and the head of the subsidiary that now owned them. His two bosses often gave him conflicting, sometimes strongly worded, instructions. Meanwhile, he did not receive the employment contract.
After only a few weeks, the sold agency was shifted to another business unit with a different manager. The employee finally received a draft contract at the time. Among other things, it stated that he would be entitled to separation pay if the company terminated him for a reason other than “for cause” or for no reason, or if he left their employment because they relocated him more than 50 miles away without his consent, they demoted him, or they violated the contract in a material way. It also provided for advance notice of termination by both parties when termination was not for cause.
He proposed six changes, including one to the separation pay clause, and signed a modified version of the contract in October. By early 2021, the COVID-19 pandemic had significantly hurt hospitality businesses and the insurance agency that serviced them. After much discussion, the brokerage moved the agency’s operations to yet another business unit, cut the former owner out of the business, and assigned the employee to a new manager.
The employee found this change unacceptable, submitted his resignation with the required advance notice, and sought the separation pay. He sued the brokerage in September 2021 after they failed to make the payments to him. The judge’s opinion did not state the amount of pay he was seeking.
In September 2024, the judge ruled that the brokerage had breached its contract with its employee. While they argued that the requirement that he would receive separation pay only if he resigned for “good reason” (as the contract defined it,) the judge held that the contract provided for the payments if he resigned for no reason at all. The good reason requirement did not supersede the “no reason” requirement.
This brokerage had the resources to employ qualified legal counsel, so it is surprising that they agreed to a contract with an internal conflict. The lesson for all agencies that use employment contracts is that they should leave no ambiguities or conflicting terms in them. To his credit, the employee negotiated a contract that permitted him to leave for any reason and take separation pay with him. Agencies should take care not to leave themselves so vulnerable in their own employment contracts. Also those who acquire agencies need to know what contracts are in place with an agency they may acquire and if those contracts become an obligation of the acquiring agency.
