Producer Contracts

PRODUCER CONTRACTS

Before new employees are hired into the agency, some sort of understanding needs to be reached regarding the terms and conditions of employment. Verbal 'gentleman's agreements,' while fine in principle, can result in costly and time-consuming legal complications. For the protection of the agency and the employees, it is recommended that a written employment contract be executed for each employee, producer or non-producer, full- or part-time.

The need for employee contracts becomes doubly apparent in the age of automation. The agency' s in-house computer system gives employees ready access to important client information that they could give out or take with them when they leave the agency. This is true even of those employees who are not considered producers. The Customer Service Representatives, for example, are apt to become very possessive of the clients they handle, forgetting that those clients are really the agency's. They may have no compunction, therefore, about running an expiration list when they leave the agency and then setting up shop elsewhere with an established clientele. For this reason, all employee contracts, whether for producers or non-producers, should include a non-piracy clause.

As with any contract, a producer contract must be fair to the owner and the employee, recognizing the rights and obligations of each. Both sides must make concessions for the common good. You, the owner, are sharing a business and reputation you have worked hard over the years to build up. By the same token, your new producer can be your assurance of a comfortable retirement, perpetuation of your agency name, or continued agency growth. Thus you both have something to gain from the relationship.

We urge you never to do either of two things:

1. Never hire a producer without establishing a contract. If you're having problems agreeing on certain sections, then have in place a short-term agreement until you work those items out. A three-month or six-month contract is better than nothing at all, and in the meantime, you can work out disagreements before they become problematic.
2. Never put a producer contract into effect without consulting an attorney. Every situation is different-and though you may feel an attorney's counsel an expensive proposition now, you'll spend multiples more should you get into a legal scrape with a producer over a contract later.

In many areas, attorneys can be found who specialize in this type of law. Agents' associations, other agents, and company marketing representatives should be able to tell you how to find one. Another possibility is to contact the referral services of the state bar association for the names of attorneys with expertise in drawing contracts for insurance agents in your area.

How far into the future can the contract be expected to remain effective? Because so many unknowns exist, a contract cannot be created that will last through all future stages of the relationship. As a result, many agents don't create a contract at all-and this is wrong.

Create one now. Revise it if you must-in six months, a year, or down the line as you see fit-but make sure you have at least a short-term contract to last through the early or trial stages of the relationship.

The initial contract should cover the same areas as a longer-term contract, except the former will have a termination date. General areas include:

• Producer duties
• Compensation
• Producer validation
• Ownership of expirations
• Options to repurchase
• Vesting of commissions
• Employee benefits
• Agency duties
• An employment-at-will provision
• Conditions in the event of termination

Following you'll find a 'Checklist of Producer Contract Considerations' that outlines the major factors you and the producer should consider in negotiating an employment contract. It's not a sample contract, but merely a guide for reaching a meeting of the minds over subjects important to both parties.

Many agents have come to believe that non-piracy and non-compete clauses between producer and agency are unenforceable-but experts say that this isn't so (unless such an agreement is determined to be against public policy in your jurisdiction) . When properly drafted, such an agreement can protect your agency from producers who decide to leave your agency and take your clients or prospects with them (using the knowledge and reputation they've obtained from their association with you to lure them away).

One reason that agents feel these clauses are unenforceable is that many such clauses have been found by the courts to be too broad or too restrictive and, as a result, have been disallowed.

Most attorneys will agree that, legally, you won't be able to stop someone from making a living in his or her chosen field by competing with you (a non-compete agreement); but you often can stop someone from taking business they've produced when with you or became familiar with during their association with the agency. If this is the intent, ask your lawyer about a well-written non-piracy agreement extending over a reasonable period of time.

In some cases, a non-compete agreement may be preferable. Should you so choose, conservative time and territorial limits properly drawn by good legal counsel may be found to be enforceable.

Inclusion of such agreements provide three recourses for the agency: moral, psychological, and legal. If the producer isn't diverted from such action by the simple reminder that it's wrong, or the conclusion that it' s risky and impractical, then the knowledge that it may be judged illegal should be enough of a deterrent.