The Minnesota Court of Appeals, in Wells Fargo Insurance Services USA Inc. v. Galioto, A19-0175, 2019 WL 4409414 (Minn. Ct. App. Sept. 16, 2019), determined that a restrictive covenant ancillary to the defendant-employee’s offer of new employment did not require independent consideration, despite being retroactively dated. The Court of Appeals reversed the district court’s grant of summary judgment in favor of the defendant-employee (finding independent consideration was required) and remanded the case for further proceedings.
In May 1999, Angelo Galioto became employed by W.A. Lang Co. subject to a non-compete covenant. On January 13, 2000, W.A. Lang sold its assets to Acordia of Minnesota, Inc., with a retroactive effective closing date of January 1, 2000. On January 14, Acordia provided Galioto with a new employment agreement containing a restrictive covenant, similar to his covenant with W.A. Lang, and a retroactive provision, stating that his employment with Acordia commenced January 1, 2000. Galioto executed the agreement and received his paycheck from Acordia for the preceding two weeks.
In 2017, Galioto resigned and went to work for a competitor. Wells Fargo (the successor of Acordia) sued. The district court dismissed the claims on summary judgment for lack of consideration and Wells Fargo appealed.
The Court of Appeals rejected Galioto’s argument that the employment agreement required independent consideration since it was effective January 1 but not provided to him until January 14. The Court held that Galioto only received the benefits of employment with Acordia upon signing the employment agreement on January 14, despite the retroactive provision.
The unpublished decision in Galioto raises a few questions. When the assets of one company are acquired by another, often the selling company simply assigns non-competes to the purchaser. Indeed, the Court’s decision makes clear that restrictive covenants were assigned in the asset sale yet makes no reference to any argument enforcing the agreement on this basis. Second, the opinion suggests that Galioto would not have been entitled to be paid for the two weeks if he did not sign, which is not the case. He clearly would have had the right to be paid regardless of whether he signed the agreement. Third, employers might try to characterize the decision as allowing back-dated non-competes for any current employee but that would likely be an over-extension of the narrow holding. The court distinguished the facts here, stating, “[w]e are not convinced that this situation is analogous to cases where an employee worked for a company for weeks before receiving a noncompetition agreement.”
The court likely considered extenuating circumstances such as (1) Galioto already had a non-compete before the sale; (2) employees were notified before the sale; and (3) Galioto chose to sign and stay with the company for seven more years after signing.
Nevertheless, the case stands as a rare exception to the strict position that Minnesota appellate courts have taken regarding offers of employment as consideration for restrictive covenants in recent years.
If you have questions about enforcing a Minnesota non-compete, contact the non-compete attorneys at Trepanier MacGills Battina P.A. for more information.
Anna. M. Koch is a Minnesota non-compete attorney with the law firm Trepanier MacGillis Battina P.A. She can be reached at 612.455.0991 or firstname.lastname@example.org.