When one insurance agency purchased a smaller one in Michigan, a dispute between the buyer and one of the producers ended up with them suing each other.
The producer was an independent contractor for the agency at the time it was purchased in 2019. His original agency bought his book of business at the time of the acquisition and sold it to the buyer. He subsequently signed an employment agreement with the buyer and a separate “letter agreement.”
The employment agreement gave the new agency ownership of any accounts he produced; set maximum commission rates for new and renewal business; gave the agency control of the form of his compensation (commission vs. salary;) and gave the agency the right to change commission levels at any time. It also stipulated that, if he left the agency, he would forfeit his rights to renewal commissions and commissions received after his separation date for new business. A two-year non-solicitation and non-compete agreement were also included.
The letter agreement made him eligible for contingency bonuses based on servicing existing accounts and selling new ones.
Fourteen months after the agency purchase, the producer sued for alleged violations of both contracts. The sides settled a few months later but left the terms of the employment contract in force. The settlement agreement held that any new accounts he wrote before March 2021 with another agency owned by the same large brokerage would belong to his old agency. He subsequently moved to another agency owned by them. The new agency paid him smaller commission rates.
Some confusion about which revenue belonged to which agency followed, with the result being that the producer believed he was deprived of thousands of dollars in bonus payments due him under the letter agreement. He also claimed that the new agency did not provide him with the office equipment he needed, a charge the agency disputed.
Further disagreements about commission payments ensued, with some allegedly the responsibility of the old agency. The new agency did not pay him at all while he worked there and ultimately paid him a fraction of what he had earned at the old agency. He claimed that the new agency tried to force him to sign a new contract reducing his commission rates before it would pay him anything.
In August 2021, he accused the agency of violating his contracts and declared himself free of any further obligations under them. He landed at a third agency and there was “overlap” between his clients at the old and new agencies. The large brokerage he used to work for sued him for violating the non-solicitation and non-compete agreements. He countersued them for failing to pay commissions, failing to service his accounts, failing to equip him at the second agency, requiring him to agree to reduced commissions before he would get paid, and failing to make the second agency comply with his contract.
The judge found that the buying agency had not committed a substantial breach of the contracts. Instead, he found that most of the producer’s allegations did not hold up. The only charges he refused to rule on were accusations of violating state labor laws by not paying commissions on a timely basis and improper deductions from his pay.
When one agency purchases another, it is also purchasing that agency’s employment contracts. As this case illustrates, those contracts can create complex situations. This producer appeared to become disgruntled under the new ownership shortly after the acquisition, and he kept careful track of what he believed he was owed. It is important for any agency that is buying another to know and understand what the terms are of the contractual obligations the seller has. A clear understanding of the contracts may help avoid fights like this one.
