A disgruntled broker leaves a brokerage with no notice, taking away the book of business that he brought to the brokerage with him.
The broker never signed a written agreement outlining who owns his book of business when he leaves. He denies agreeing to a 50-50 ownership split of the book of business with the brokerage.
When there is no written or verbal agreement in place, who owns the broker’s book of business when he quits?
The broker, the Ontario Court of Appeal affirmed recently.
“There have been cases in the past dealing with independent contractors trying to take their books of business elsewhere, but typically it’s something that is provided for in a contract,” Paul Boshyk of McMillan LLP said of the court’s “ground-breaking” decision in Gentech Insurance Ltd. v. Martina. “It’s always been a contractual interpretation approach taken by the courts.
“Here in this case, there was no contract at all. With respect to a broker who has his own book of business, with there being no contract with the brokerage, this case was novel in that sense. It’s something the courts of Ontario hadn’t really addressed in the past.”
In the absence of an agreement to the contrary, independent contractors and other non-employees are free to terminate their employment without notice and may take their books of business with them, Boshyk said. He therefore recommended that brokerages enter into written services agreements with independent contractors and other non-employees. Such contracts should explicitly outline:
• the period of notice required from the independent contractor or other non-employee in order to effect resignation;
• ownership of the book of business;
• what happens to the book of business following termination of the independent contractor or other non-employee's services; and
• restrictions regarding the solicitation of clients from the book of business.”
In Gentech, the brokerage maintained that two of its brokers, Alan Martina and Peter Diamantouros, would each be paid on the basis of a 50-50 split of commissions. Also, the brokerage claimed a 50% share of each individual producer’s book of business. The brokers denied that they had agreed to a 50-50 co-ownership of their books of business.
Martina first joined Gentech as a customer service representative in 1996. He left to join
Marsh Canada in 2002. He called Alexander Muir, one of two owner-operators at Gentech, to ask for a reference and Muir then convinced him to work for Gentech as a producer in 2005.
Martina did not bring his own book of business over from Marsh. Gentech proposed a monthly draw against Martina’s commissions until he had established a book of business.
With Martina’s help, Gentech successfully courted Diamantouros, a former colleague of Martina’s at Marsh. Diamantouros joined Gentech in 2006, bringing with him a pre-established book of business.
“It is common ground that he [Diamantouros] never saw nor was he ever asked to sign a services agreement or a non-competition and non-solicitation agreement,” the Ontario Court of Appeal found. “He was remunerated throughout on the basis of a 50/50 split of gross commissions on his book of business.”
In Martina’s situation, Muir and Martina had discussed drafts of an agreement, in which the 50/50 book ownership was discussed, “over a beer or two at a local pub,” as the court put it. “It is also common ground that [the draft documents] were never referred to again [save for a later dispute over commissions]… and that they were never signed. Mr. Muir concedes that he ‘never got around to it.’”
After a few years, each producer at built up their books of business to the point where Martina was making about $210,000 per year, and Diamantouros was making about $180,000. They both grew dissatisfied and quit Gentech without any notice in January 2009. Each took their book of business with them to join Diamantouros’s old brokerage, Murray Hoffman Insurance Brokers.
The Appeal Court affirmed that Diamantouros could take his book of business with him. It ruled that Martina could not, because he had made an oral agreement based on the draft documents that the broker would buy out his 50% share of the book upon leaving the company.
