No, a Perpetually Unfair Commission Splitting Agreement Is Not a Trade Restriction | Shutts & Bowen LLP
In a recent case that is interesting for both antitrust attorneys and insurance agents to read, which probably does not happen often, the Florida Second District Court of Appeals (“Second DCA”) ruled that a commission-sharing agreement, even a very unbalanced one, should not be analyzed under the Florida Restrictive Covenants Act (Fla. Stat. § 542.335) because such an agreement is not a ” restriction of trade ”under Florida law. Capital Wealth Advisors, LLC v Capital Wealth Advisors, Inc., — So. 3d —, case n ° 2D20-2446 (Fla. 2d DCA October 21, 2021).
The written opinion of the second DCA is more interesting for what it does not discuss, given the facts set out in the opinion, which are as follows:
In February 2011, the Agent and the Company entered into a commission agreement (the Agreement). Under the Agreement, the Company would pay the Agent a percentage of the insurance commissions when the Company sells insurance products through a network of referral sources cultivated by the Agent. The Agent received one hundred percent of the commission for the sale of any product created and sold by the Agent. He received seventy-five percent of the commission for the sale of products originating in the Company but sold by the Agent, and between fifty-five percent and seventy-five percent for the sale of products (depending on the total amount commission) that the agent created but that the company sold. The agreement provided that this commission-sharing agreement would survive termination and continue in perpetuity.[.]
Username. to 1. Thus, a reading of the facts thinks that, without doubt, this opinion will address an argument of the litigants concerning the opposability of a perpetual contract. But, instead, the opinion explains why the trial court erred in concluding that the perpetual contract is unenforceable as a trade restriction.
The second DCA began its analysis with the fundamental question of what constitutes a “restriction on trade”, since it is not necessary to address the issue of compliance with the Stat. § 542.335 unless the matter presented is in fact a trade restriction. The notice explained:
However, we do not need to reach the reasonableness of the scope of the Agreement or whether it is necessary to protect a legitimate business interest under Section 542.335 unless and until we determine that the commission sharing agreement is, in fact, a restriction on trade or commerce under section 542.18.
Section 542.18 provides that “[e]any contract, combination or conspiracy to restrict trade or commerce in that state is illegal. The Company argues that because the Agreement imposes “substantial financial deterrence” on the Company, it constitutes a “trade restriction” as that term is used in the law. However, depending on the respondents’ rationale, each referral agreement, cost-sharing agreement or commission structure would constitute a trade restriction governed by law, as each of these elements creates a deterrent effect, substantial or otherwise, for the individual. or the entity that enters them. For example, a real estate agent might be less motivated to get up from the couch on a Saturday afternoon to show a house to a potential buyer if that buyer has been referred under an agreement whereby the agent must pay to the referrer. a percentage of it could be paid at a sale. But that alone does not turn the benchmark arrangement into a restriction on trade.
The restraint prohibited by article 542.18 is safe Trade Where Trade in general — not on competitiveness or the incentives of individual actors…. Section 542.18 does not prohibit any agreement that could reduce or even substantially reduce — the competitiveness or profit motives of an individual, firm or even a group of individuals or firms entering into the agreement.
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So even though this commission-sharing agreement was a bad deal for one of the parties, it did not make the agreement unenforceable as a trade restriction. The second DCA continued its analysis:
The Company describes how this is a good deal for the Agent and how severe the effects of the deal were for the Consignees. The Agreement may well have been – or become, in light of the circumstances developed after its execution – sufficiently advantageous for the Agent and disadvantageous for the Company and Individuals. That does not make it a restriction on trade or commerce.
And just as the emphasis on the lopsidedness or openness of the particular agreement in which the respondents entered puts the cart before the horse, a premature examination of the geographic or temporal scope of the agreement overshadows the determination of the threshold of whether there is a restriction on the trade to begin with. While the deal may now be financially unfavorable to callers due to the size of the referral source list and the continued obligation to share commissions earned on past introductions, it was the deal that was concluded and under which the called persons operated for some time. And it does not restrict trade or commerce in the insurance sales market. The Accord simply requires the Company to divide the commissions; it does not even preclude the Agent’s ability to sell its own insurance products to potential buyers, including clients of the referral sources listed in Annex B. The Agreement does not adversely affect the ability of consumers to procure insurance products since both the business and the agent can compete freely for the same business.
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The mottos of this story: (i) a commission-sharing agreement should not be seen as a restriction on trade; (ii) a bad deal, even a bad deal in perpetuity, without more does not subject the deal to antitrust review; and (iii) only restrictive covenants that restrict trade – not all “restrictive” covenants – are subject to the statutory limitations and requirements set out in Stat. § 542.335.