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WHY GEOGRAPHIC NON-COMPETE AGREEMENTS DON’T WORK
Some geographic limitations were inane (like the prohibition of writing insurance competing with the agency in the U.S., or in an entire State or region of the country). Any challenge to those types of limitations would quickly be resolved by courts, who typically favor the individual over the business entity and generally allow a former employee to practice his chosen and trained profession where he lives. It would seem a stretch to force a dentist, a lawyer, a car salesman OR AN INSURANCE AGENT to move to a new location and start over again just because he chose (or his employer decided) to terminate their relationship, especially when the former employee practices his profession on prospects and clients who are not (or have never been) clients of the former employer.
Agents trimmed their geographic non-compete to within a county, or to a geographic area around the former employer’s agency that defines where most of the agency’s clients are located. The agents hoped that this prohibition for a period of a few years would allow the clients relationship to the agency to transfer from the departed employee to a new employee relationship between the client and the agency. If the agency chooses NOT to form a replacement relationship stronger than the relationship the client had with the former employee, that’s truly the agency’s fault and, if they lose the client when the duration of the non-solicitation period is exhausted, they have no one to blame but themselves.
BUT HERE IS THE REAL REASON THAT GEOGRAPHIC NON-COMPETES ARE NOT ONLY INEFFECTIVE BUT POTENTIALLY DESTRUCTIVE AND DEVASTATING TO THE AGENCY WHO USES GEOGRAPHIC NON-COMPETITION AGREEMENTS
When you set a radius (10 mi, 25 mi, 50 mi, the County border) around your office as the limitation of the non-competition area, you are also setting “one step beyond that radius” as the location from which you have acknowledged that the former employee can legitimately compete against the former employer on any account.
Your intention was to prohibit the former employee from soliciting or accepting your agency’s customers because of the confidential information to which the former employee had access while working for your agency. We hope (and assume) you are not trying to “punish” the employee by telling him that if he doesn’t work for you, he can’t work in the job for which he was trained and for which he is experienced as his career. If punishment is the goal, any court challenge will invalidate that section of your Agreement (or the Agreement in total if the court so chooses).
Your best bet is to use a Non-Solicitation Agreement instead of a Non-Competition Agreement. That prohibits the former employee from either soliciting or accepting (if the client wishes to move voluntarily) any of your agency’s customers for a reasonable period of time while you replace that employee with another who can establish a relationship with the clients and “even the playing field.” In a reasonable period of time the information that the former employee knew about the client will no longer be current and if he chooses to solicit that client he and your agency will be in a “head-to-head” competition situation that you face with other agents every day. Yes, the customer is the final arbiter of where he will be insured, but a valid non-solicitation agreement can prohibit the former employee from accepting the customer during the agreed-upon period of time.
This does not address the Non-Competition Agreements that prohibits someone who SOLD you a book of business from re-soliciting that business after he has taken your money for selling it to you in the first place. If you have that problem, we invite your call (856) 779-2430 and we will be glad to help you.