December 2, 2019

Negotiate Your Insurance Non-Compete: Understand Misconceptions

by Kris Gibson

If you work for an insurance agency, then you are no stranger to non-compete agreements. Most people sign them without giving it much thought until one of several trigger events occurs.

Trigger Events

  • I want to leave my agency and work for a competitor
  • I anticipate that my agency is going to sell
  • I see a former colleague is embroiled in a legal battle with my employer
  • I was approached by my current agency to sign a new contract

Protection & Purpose

Before we can talk about negotiating a non-compete, it’s important to understand the purpose behind an agency’s desire to dictate employment terms.  

  • Retain Clients
    • Client are money and the agency’s #1 focus. They don’t want you to solicit or encourage clients to leave. They’ve paid you renewal commissions to produce business for the firm. They’ve invested in resources to service the business. They want ample time (usually 12-36 months) to continue retaining clients.
  • Retain Employees
    • Your resignation is one thing. Taking a gaggle of other producers and support staff has a damaging ripple effect. Non-solicitation covenants protect the agency from a mass exodus that leaves them very short staffed.
  • Retain Market Share
    • Radius restrictions are hit or miss. You agree to not work for certain kinds of businesses in a geographic radius for a period of time following departure. This clause will read something like: “You may not work for another insurance agency with an office located within 50 miles of any current office locations for 24 months following termination of your employment.”
  • Retain Property
    • Property falls in the ‘all other/miscellaneous category’. These can include intellectual property, specifics about a business’s practices, copies of financial reports and so forth. For example, producers have been known to download their entire book of business report. This clause is the first step to preventing employee theft.

Misconceptions About Negotiating Your Insurance Non-Compete

Since non-competes are a standard business practice, it’s inevitable you will need to face the issue to make a job change. The question is whether any aspect of your in-force agreement is negotiable. Don’t let misconceptions prevent you from negotiating your contract.

  1. I cannot negotiate terms before signing a non-compete.

In most cases new employees need to sign the contract in its original form. However, insurance brokerages can be open to modifying terms during the hiring process.

My Advice: The best time for a serious, intelligent conversation with a future employer is after an offer has been made. They will be more inclined to negotiate to get you on board.   

  1. I’ve already signed the non-compete. I must abide by all the conditions.

I’m not a lawyer, I cannot say that enough. I AM NOT A LAWYER. But, having worked in the insurance industry and insurance recruiting for over a decade, I have designed and signed non-competes myself. I’ve been involved in a lot of situations where a release, in whole or in part, was reached through negotiation.

My Advice: Find a lawyer you trust that specializes in contract law. If you’re uncomfortable with aspects of your contract, the time in your employment this issue arose is irrelevant. The agency wouldn’t hesitate to ask you at any given moment to sign a new agreement, so you reserve the right to do the same.

  1. All of the terms and conditions are enforceable once

Just because the contract looks well prepared doesn’t mean it’s infallible.  Never assume everything in your contract will stick. Non-competes can be designed as deterrents or scare tactics as much as binding contracts. With advice from your lawyer consider these factors to improve your position.

  • Blue Penciling: Understand your state’s processes for review. Some states evaluate agreements clause by clause and toss language deemed unenforceable or unreasonable. This process is called blue penciling. Your agreement, minus these issues, remains in place.
  • All or Nothing: Some states take a 0% or 100% viewpoint on non-competes. If one clause in your contract is unenforceable the entire non-compete is void.

Watch for Part 2: Resignations in this blog series. We’ll take a closer look at three steps to negotiate a new employer’s non-compete.


You may also like