A proactive approach begins with implementing a policy that requires all employees, especially producers and others in client-facing positions, to sign documentation outlining what they cannot do, and for how long they cannot do it if they decide to leave. The three types of agreements are non-competition, non-disclosure and non-solicitation agreements:

Non-compete agreements (NCAs), when enforceable, afford the most comprehensive protection against post-employment competition. A broad NCA precludes an employee from selling insurance in any capacity for X years following departure. Others may be more specific and preclude the sale of insurance within a certain geographic range, industry or other targeted niche for the determined time. This depends upon the situation. For example, when an agency's range is national, a geographic limitation may be moot. Typically, NCAs are drafted with a 2-year limit. A limit of 3 or more years will likely be found excessive by a court, and a shorter limit may invite disregard. When the NCA grows out of the sale of an agency, however, a restriction of as long as 5 years on competition by the seller is not uncommon. If an NCA is overly broad and doesn't include reasonable parameters, courts will be less inclined to enforce it. There must be a reasonably equitable balance between the agency's legitimate interest in protecting its business and the ex-employee's ability to earn a living.
Non-disclosure agreements (NDAs) prohibit the employee from disclosing or using the company's confidential or proprietary information. NDAs aren't necessarily what protect the company from theft of trade secrets (other areas of the law cover that), but they do spotlight the fact that the employer is serious about protecting confidential information and provide an opportunity to clearly define what the employer considers confidential or proprietary. This may include sensitive pricing information, renewal dates, client contacts, business strategies and customized client service processes. Because today's rogue employee can siphon a trove of information in just a few keystrokes, the most enlightened firms are deliberate about information security.
Non-solicitation agreements (NSAs) prohibit the employee from soliciting clients of the agency for a limited time following their departure. NSAs may be broad to include any client the employee has serviced or prospected while at the firm, or they may be sharply focused on certain key clients that the company especially wishes to protect. They also may prohibit the employee from working for a rival agency that is soliciting those clients, regardless of whether the former employee is involved in the solicitation. A growing number of NSAs recognize the value of retaining other key employees and producers—the loss of whom may be even more devastating than the accounts they service—by prohibiting a departed employee from actively recruiting others to his or her new shop.

Enforceability and Litigation

Special Reports /

Still Crazy After All These Years: Lateral Moves and Non-Compete Agreements

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