A decision by US authorities to ban non-competition clauses in employment contracts need not crimp the style of leading re/insurance brokerage groups or threaten them with an increase in producer attrition, top industry leaders have claimed.
Both Arthur J Gallagher and WTW claim to hire producers without relying on non-competition clauses, leaning instead on non-solicitation and non-disclosure clauses as their main form of protection from business attrition and further employee loss following voluntary departures.
“Our agreements with our production staff do not include non-compete provisions,” Gallagher CEO Patrick Gallagher told his company’s first quarter earnings call, mirroring a prior day statement from WTW CEO Carl Hess.
Gallagher calls it a “fine line of difference,” but likes his current set-up for covering both lingering Gallagher employees and Gallagher clients following a departure.
“From our first look, we think those are going to remain enforceable,” Gallagher said of the non-solicitation terms.
Likewise WTW, which uses non-solicitation and non-disclosure agreements. “We see this as quite manageable for us,” WTW’s Hess told his company’s Q1 earnings call. “We’ve managed quite well with these in the past and we’ll mange quite well going forward.”
Gallagher had initially been concerned that such a ban would undermine the value in its massive M&A programme of smaller brokerages by allowing breakage, but was comforted by exclusions for M&A cases.
Comments follow word April 23 from the US Federal Trade Commission that it had issued a final rule to ban non-competes nationwide, a move it justified by the need to promote competition by “protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”
Gallagher doubts the logic of the FTC move, considers it an “over-reach” of executive branch authority and claims to be supportive of a quick lawsuit against the decision by the US Chamber of Commerce.
“Having said all that, we want people to work here,” Gallagher said of his employee retention thinking. “This is a great place to work.”
“While I don’t agree with the FTC, … for our business I think it is a non-issue.”
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