When a broker leaves a brokerage, who owns the clients?

Personal relationships with clients are a critical part of a broker’s business. So, when a broker decides to leave a brokerage, who owns the clients — the broker or the brokerage?

“Really, the brokerage,” said John Elwick, a partner with Alexander Holburn Beaudin + Lang LLP in Vancouver. He spoke to Canadian Underwriter  Wednesday about non-solicitation agreements, which are intended to protect employers from having customers, clients, suppliers or employees poached by a departing employee. An example would be a broker who tries to encourage clients to follow him to his new employer when he leaves his former brokerage.

Canadian Underwriter spoke to Elwick shortly after the Quebec Court of Appeal dismissed a $204,000 award made against a broker, overturning a trial court decision. The appeal court found the broker did not violate a non-solicitation agreement with his employer.

Courts will always look at the precise language contained in the non-solicitation agreement and at the specific fact situation. So, it’s not always straightforward how courts will interpret the contract.

What happens if the broker brings clients into the business? “They bring in on the basis that they’re going to be working with this organization and it becomes [the brokerage’s] client,” Elwick said. “If they are paying this broker and he brings in his business, he just can’t walk out the door with it when he so chooses.”

In a recent ruling from British Columbia’s broker regulator, one broker walked out the door with a list of clients and was fined $2,500 for a privacy breach. The broker left his brokerage of 12 years to join another agency in 2016. He took no physical files, but kept a spreadsheet of client names, policy numbers and policy effective dates. The Insurance Council of B.C. found the broker did not have permission to take the spreadsheet, or have express consent of clients to keep the information on it. In its decision, council cited its June 2017 bulletin, Reminder of Licensee Responsibilities Related to Disclosure or Transfer of Client Information. It states: “[It] is the general insurance agency, and not the general insurance agent representing the agency, that is the agent of record on a client’s general insurance policy. Therefore, the agency ultimately holds responsibility for the proper handling of a client’s information.”

Council concluded a general insurance agent must not have client information, including records or documentation, in his possession when he leaves one agency to represent another. He must also “not disclose or transfer client information from the former agency to the new agency without the consent of both agencies and the express authority from the client to do so.”