Canadian Underwriter

How to prevent brokers from poaching clients when they leave the brokerage

August 30, 2018   by Jason Contant

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Insurance companies or brokerages trying to prevent employees from poaching clients should include precise and specific employment restrictions on time and geography, a commercial litigation lawyer cautioned Wednesday.

To draft an enforceable non-solicitation agreement, brokerages should provide realistic parameters on time, geography and type of business, said John Elwick, a partner with Alexander Holburn Beaudin + Lang LLP in Vancouver. “You’ve got to make sure you don’t go overboard on the period of time in which the covenant is effective, the geographic coverage and the extent of the activity which is sought to be prohibited,” Elwick said. “You can’t draw too wide a net.”

For example, a one-year time period is standard. The agreement also “has to be focused fairly tightly on where the organization does business” and very specific on the type of business being restricted, Elwick said. “You can’t say you are restricted to doing this throughout North America or the world.”

In general, non-solicitation agreements are intended to protect the employer from having its customers, clients, suppliers or employees poached by a departing employee. In the insurance context, this could mean a broker that tries to encourage clients to follow him to his new employer when he leaves his former brokerage.

Canadian Underwriter contacted Elwick shortly after the Quebec Court of Appeal released its decision in Lemieux vs. Aon Parizeau inc., a case that once again raised the issue of whether a non-solicitation agreement could be enforced.

Employment law firm Whitten & Lublin said that courts will review a non-solicitation clause based on the ‘reasonableness’ standard, meaning the wording must only go as far as necessary to protect the employer’s business interests.

“If the wording of the solicitation clause goes beyond the solicitation of the employer’s client base, then it is likely to place unreasonable limits on the employee’s ability to freely compete and earn a living,” the firm said. For example, a clause may only restrict solicitation of clients the employee dealt with or the types of clients that the employee works with.

Consider the case of Donaldson Travel Inc. v. Murphy in the Ontario Superior Court of Justice in 2016. Mary Murphy was a former employee of the travel agency that left to work for a competitor company. Donaldson claimed that Murphy solicited clients, violating the non-solicitation clause she had signed. The clause read: “Mary agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by… Donaldson Travel, directly, or indirectly.”

The court deemed the clause unenforceable for several reasons:

  • There was no limit in time and geography. As worded, it would never expire and would apply to anywhere in the country, which is unnecessary to protect the travel agency’s business interests
  • The phrase “or accept business from” goes beyond the act of solicitation, placing an unreasonable restriction on Murphy’s ability to earn a living
  • The term “any corporate account” is too broad. It would be reasonable to limit the solicitation of clients that Murphy dealt with; however, the wording here would prevent Murphy from conducting business with any clients of Donaldson, even ones that Donaldson establishes after Murphy had left.

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1 Comment » for How to prevent brokers from poaching clients when they leave the brokerage
  1. Thom. C.J. Young says:

    Valid points in the article but I would add that the agreement should stipulate a valuation of the accounts and give the employee the right to take the business with them at a predetermined price based on the revenues. This makes it an asset value agreement rather than an action restricting one. Go ahead and take the business but pay us for it if you do OR suffer a money penalty if you don’t pay us. This lets you sue for the values of the business taken, rather than for violation of an agreement not to take it. Money judgments from the breach of this kind of agreement can be recovered by application of a garnishee on the person salary with their new employer too.

    Don’t get all wound up about punishing the employee for taking the clients, or as my father used to say, don’t get mad, get even.

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