Starting an Agency and Dealing with Non-Compete Agreements

[AgencyEquity]

Many producer agreements come with some sort of non-compete clause. Nearly all captive agency contracts have non-compete clauses written into these agreements. Such clauses may or may not be valid, depending on the state laws as well as a number of other factors. Nearly all non-compete clauses have some sort of a time limit — often a year or two. The non-compete clause can cover various items after a contract is terminated (by either side), including:

 Ability to compete for a client
 Ability to locate within a certain radius or territory
 Ability to compete in a certain time frame
 Who owns the phone number

Some states prohibit non-compete agreements to a certain extent. In some cases a client is not bound by the non-compete agreement and cannot be prohibited from choosing whom to do business with. Nevertheless, those looking to transition from being an employee to their own agency should proceed with caution. You should consult with an attorney who is familiar with non-compete agreements in the state(s) you do business in. A good attorney should also tell you to what extent you can market to previous clients, such as:

 Contacting your clients
 Sending an announcement
 Re-capturing clients through advertising

Lastly, even if a non-compete agreement is limited to a year or two, this is not that long. Afterwards, you can still try to recapture a client, especially if you provided quality service and built up a positive relationship.