Articles

Employees Burned by Noncompetes

By Charles A. Horowitz, Attorney at Law

Whether you are an employee subject to a noncompetition agreement or an employer subjecting key employees to a noncompete, it is important to know if your agreement is worth the paper it's printed on. A recent trio of simultaneously issued, employer-friendly decisions from the Minnesota Court of Appeals appears to mark a shift in the law. Reading the cases in tandem, one may now plausibly question the continuing viability of the old legal cliché that noncompetes are "disfavored under the law as restraints of trade."

The first decision, Sealock v. Petersen, involved an alleged breach based upon the departing employee placing an ad for his new optometrist practice in a local newspaper. The former employer's noncompete prohibited him from "competing" within a five-mile radius of the employer's clinic in Waconia, Minn. Relying on the dictionary definition of the word "compete," the Court held that the mere act of placing an advertisement in a newspaper whose circulation reached the prohibited area resulted in a violation. In so ruling, the Court emphasized the localized nature of the newspaper, contrasting this form of marketing with yellow pages or Internet advertising, which covers a far vaster geographic area.

The second decision, Tenant Construction, Inc. v. Mason, raised the question of whether an employer's $500 payment constituted sufficient "independent consideration" upon which to enforce a noncompete entered into after the start of employment. (Under Minnesota law, such agreements are only enforceable if the employee receives something of value, typically in the form of a signing bonus or other payment separate from ordinary wages.) In finding the $500 payment sufficient, the Court emphasized that the employee could have, but did not, bargain for a greater amount. Whether or not the Court's reasoning reflects a blindness to workplace realities, its decision certainly suggests that even a modest payment may suffice to uphold a noncompete.

The final decision, Witzke v. Mesabi Rehabilitation Services, Inc., involved enforcement of a noncompete entered into eight months into the employment relationship without a separate payment by the employer or any simultaneous increase in status or responsibilities. Some seven years later, the employee left and began a competitive venture in flagrant breach of the agreement. The issue for the Court was whether "independent consideration" existed upon which to uphold the noncompete. In answering yes, the Court held that continuing employment alone could support enforcement of the noncompete, "if the employee is employed for many years, advances within the company, and is given increased responsibilities." The employer argued that it promoted the employee in "reliance" on the employee's having signed the noncompete. Although at least one prior case precedent had suggested that such continued employment may constitute "independent consideration," the employee in that case prevailed. The decision in Witzke lays to rest the conventional wisdom in Minnesota that only a payment of money will normally suffice as "independent consideration."

Whether you are an employee or business owner, Mansfield, Tanick & Cohen is available to assist you in navigating the tricky, high-stakes world of trade secrets and noncompetition agreements.