Cutting Ties with the Ex

Non-competition and non-solicitation agreements are designed to prevent ex-employees from stealing your customers. And from time to time, you’ve seen legal articles warning you against poorly worded ones. (See John Elwick’s article,’Barring the Floodgates,’ in the April 2009 edition of Canadian Underwriter.) But is it good for your business to rely on these “restraint-of-trade” agreements? They cost you legal fees to draft, argue and enforce. They distract you from your business. And courts dislike them because they restrict customer choice. Instead, isn’t it better for your business to direct your efforts to the real decision-makers — your clients?

When an employee leaves, here’s an illustration of a letter you might draft yourself. The guiding theme is to show your customers that, at all times, you put their interests ahead of yours.

“Recently, John Smith left our company. As we hope you know, our first concern, always, is our responsibility to you and to protecting your interests. If you decide that you wish to continue dealing with John, we shall do all we can to make the transition easy for you. But our team offers more than any one individual can. So we hope you will stay with us and continue to rely on all of us to help you reduce the costs and manage the risks that affect us all, whether through insurance or through the other risk management techniques that we can help you apply.

“We will call you within the next several days as part of our regular practice of helping you monitor and manage the risks you face, and to make sure that you continue to feel comfortable calling us any time.”

At first, this approach may seem naïve and weaker than a sophisticated legal agreement. But consider the impression it would leave on your client.

Of course, some will say it’s good to have both the “restraint-of-trade” agreement and a letter and follow-up call with clients. But is it? Whatever lawyers may say about your rights, it’s your customers’s opinion about your service that matters. Your business depends on your full attention and devotion to your customers. Why distract yourself with ex-employees? If ex-employees can serve your customers better than you can, then you want to improve your business practices, not waste resources restraining your competition.

EXCELLENT CUSTOMER SERVICE

In its 2008 Canadian Home and Auto Insurance Customer Satisfaction Study, J.D. Power & Assoc. found that “among the 12 brands [of insurers] that rank below the average, eight have their policies distributed primarily through independent brokers.” Another surprising fact: 50% of customers who use brokers never had their policy reviewed after the initial purchase. J.D. Power also found that “customer service overshadows price/premium or policy offerings.” The conclusion? Price cuts don’t keep clients. Service does.

In a recent survey, the Insurance Brokers Association of Ontario found that “broker customers like to be contacted at least twice a year, not including renewals or claims.” Yet, “37% [of respondents] said they were contacted less than they would have preferred.” The same survey “found that 17% of the market has switched from the broker channel to another provider over the past three years.” And “18% of respondents were ambivalent when asked if they would recommend a broker to their family or friends.” Conclusion: Do not worry about whether former employees contact your clients;worry about whether you do. Customers are not stolen. They leave.

Isn’t it better to spend your money on your customers? Turn a lost employee into a new opportunity to call customers and confirm your commitment to their interests. Give them reasons to stay. Stress the skills of your whole team over any single member. In your contact call, be prepared to review the customer’s policy as knowledgeably as if you had been the broker or agent who represented the customer from the start.

And why not do more to keep the customers you have? Regularly have staff with different skills reach out to your customers with premium-reducing risk management ideas. Or have your claims specialists call customers to give them an overview of the claims process. Show your customers that there is more to preparing for an accident than sprinklers and safety belts. Show customers that your whole firm is their best risk reduction resource. Bind them by more threads than just one employee. Costly and hard to enforce (even when valid), a non-solicitation or non-compete contract with an ex-employee doesn’t bind a customer.

Even if clients leave, in time they might return. Thus, the way you approach a former employee’s client may determine whether or not that client stays your own. Spend more time pursuing existing clients, through whom most of your referrals come, rather than chasing former employees for clients you may have lost.

A business’s profits are found not in the law or contract but in the satisfaction of the customers who pay its bills.