In this month’s Noncompete News, we remind our readers that restrictive covenant contracts are just that: contracts. Particularly in those states like Georgia that do not allow courts to “blue pencil” or modify restrictive covenants ancillary to an “employment relationship” (in Georgia, independent contractor agreements are strictly scrutinized, akin to an employer-employee relationship, and not blue-penciled), the success of a litigant lives and dies with the wording of the agreement.
Take the recent decision of Atlantic Insurance Brokers, LLC (“AIB”) v. Slade Hancock Agency, Inc. (“SHA”), for example. In that case, Mr. Phillips, an insurance agent, entered into a consulting agreement with AIB. The agreement contained a “Nonsolicitation of Insureds” provision. In relevant part, the provision prohibited Mr. Phillips, for a two-year period following the termination of the Consulting Agreement, from “solicit[ing], sell[ing], attempt[ing] to divert or provid[ing] competing insurance coverages to any insureds who transacted business with [AIB] and with whom [Phillips] dealt on behalf of [AIB] and had material contact . . . during the term of this Consulting Agreement.”
During the term of the AIB Consulting Agreement, Phillips began working for SHA. While at SHA, an insured contacted Phillips about securing long haul liability insurance. SHA did not have a source for such policies, so Phillips contacted AIB to act as an insurance broker. AIB placed the coverage for the insured. The following year, the insured’s policy was canceled. The insured again called Phillips, who, this time, found coverage through SHA.
AIB sent a letter to SHA and Phillips, notifying them that it considered Phillips’ actions to be in breach of the Consulting Agreement. SHA and Phillips then filed a declaratory judgment, asking the court to determine that Phillips’ actions did not violate the Agreement. The Court of Appeals upheld judgment in favor of Phillips.
The Court acknowledged that the nonsolicitation provision was enforceable and, by its plain terms, applied to insureds who transacted business with AIB and dealt with Phillips during the term of the Consulting Agreement. The Court also noted that the nonsolicitation covenant only prohibited Phillips from providing competing insurance services to an insured who transacted business with AIB during the relevant time period where Phillips dealt with that insured “on behalf of [AIB].”
In this case, there was no evidence that Phillips dealt with the insured “on behalf of AIB.” Rather, the undisputed evidence showed that the first contact between the insured and Phillips was when the insured approached Phillips for help securing coverage. When Phillips invited AIB to find coverage for the insured, Phillips was doing so as an employee of SHA and not as an agent of AIB. Because there was no evidence that the insured was an insured with whom Phillips had dealt on behalf of AIB, the Appeals Court upheld judgment for Phillips.
This case highlights a few issues. First, consulting a/k/a independent contractor agreements are given the same high-level scrutiny that employment noncompetes are given. Second, courts will look at the clear language of the Agreement and apply the facts to the language to see whether there is a violation. Here, given his status as an independent contractor, Phillips could and did seek employment with a competitor and act on its behalf, not on behalf of AIB. Finally, while not expressed in the decision, it appears the Court applied some “fairness” component to its decision. Phillips obtained the client while employed by SHA, through no good will, confidential information, or other action done or information provided by AIB.
If you have any questions about this decision or other issues relating to noncompete agreements or restrictive covenants, please contact the Ford & Harrison attorney with whom you usually work or Jeff Mokotoff, a partner in our Atlanta office and the editor of Noncompete News, at 404-888-3804 or jmokotoff@fordharrison.com. Previous issues of Noncompete News are available on our web site, http://www.fordharrison.com