Ambiguities in contracts breed litigation. Recently, the United States District Court for the District of Minnesota issued a ruling in Riddle v. Geckobyte.com, Inc. concerning the ambiguity and vagueness of the parties’ employment contract. The decision demonstrates how unclear contracts keep parties in court and out of business.
Background of the Dispute
Plaintiff Jeffrey Riddle sold plaintiff RTM Marketing Group, Inc., a data and consulting service, to defendant R. Tiegen Fryberger, controlling principal of defendant Geckobyte.com, Inc. Riddle v. Geckobyte.com, Inc., Civ. No. 17-623, at *2 (D. Minn. June 22, 2018). The negotiations resulted in an asset purchase agreement and an employment agreement. The employment agreement required Geckobyte to pay Riddle $150,000 per year until December 31, 2020 and also provided for the annual bonuses of up to $750,000. In 2013, Geckobyte terminated Riddle, paying Riddle $2,500 in severance. Plaintiffs subsequently sued defendants for claims including breach of the asset purchase agreement and employment agreement, unjust enrichment, quantum meruit, conversion, and misrepresentation. In total, the Plaintiffs sought money damages in an amount over $75,000. Later, plaintiffs motioned to include unpaid wages, pursuant to Maine law, in their complaint. The court determined that this proposed additional claim would be barred due to a pre-existing Minnesota choice of law provision. Defendants brought counterclaims alleging that “plaintiffs breached the employment agreement, violated the Uniform Trade Secrets Act, and tortuously interfered with a contractual relationship and with the defendants’ prospective advantage.” Both parties moved for summary judgment.
The Court Found the Non-Compete Provision Invalid
Plaintiff Riddle argued that the non-compete provision of the employment agreement was unenforceable, and the court agreed. The non-compete prohibited Riddle from “engag[ing] in any business or perform[ing] any service . . . or hav[ing] any interest . . . in any enterprise that shall solicit, divert, or compete for . . . any client, or prospective client who has been contracted with, contacted, solicited, or serviced by the Employer.” The provision contained no geographic limitations and was to last for five years after termination. The court found this provision overbroad because it barred Riddle from engaging in business with prospective clients and was not limited to a specific industry, even though Geckobyte operated in many. The court also found that the five-year temporal restraint was unreasonable because defendants produced no evidence that five years was necessary to recruit and train an employee or to develop goodwill between the new employee and current clients. The court found the defendants’ claim disingenuous because it did not produce evidence that Riddle received any special training.
The Court Found the Termination Provision of the Employment Agreement Ambiguous
Defendants argued for summary judgment on plaintiffs’ claims for breach of employment agreement, unjust enrichment, quantum meruit, and conversion by claiming that they are barred by the two-year statute of limitations for breach of an employment contract and because plaintiff was an at-will employee. The court, however, noted that the litigation could be construed as a dispute over the business transaction of selling RTM to Geckobyte, which would make the dispute subject to a six-year statute of limitations for breach of contract. To maintain that the dispute involved a breach of an employment contract, the court found defendants needed to show that Riddle was an at-will employee of Geckobyte. The employment agreement, however, contained provisions supporting findings both for and against Riddle being an at-will employee. The employment agreement used the term “at-will” to describe Riddle’s employment, providing that his employment could be terminated “at any time for Cause or without Cause,” while also setting a definite term for employment (until December 31, 2020) and enumerating specific causes for termination. Because evidence submitted outside the four corners of the contract (called “parol evidence”) could not resolve the ambiguity, the court ruled that a jury must interpret the contract and therefore denied defendants’ motion for summary judgment.
Both parties want contract terms favorable to them to be as strong and broad as possible; however, broadness creates vagueness and ambiguity, which can make a contract provision weak rather than strong. To avoid hazardous vagueness when negotiating a non-compete agreement, employers should remember the following:
- A Minnesota non-compete agreement should be specific to an industry, especially if the employer operates in diverse fields;
- A Minnesota non-compete agreement should avoid including restrictions on engaging in business with non-existent prospective clients;
- A Minnesota non-compete agreement should contain a reasonable temporal scope (duration);
- A Minnesota non-compete agreement should contain a reasonable geographic scope;
- A Minnesota employment agreement should be clear on what kind of employment is bargained for: at-will employment that can be terminated at any time or employment for a definite duration that can only be terminated for cause;
- A Minnesota employment agreement should not mix and match legal terms of art; and
- A Minnesota employment contract should be internally consistent and integrate smoothly with all parallel contracts entered into at the same time (e.g., an asset purchase agreement).
Negotiating clear and effective contracts can be difficult. If you need help drafting a Minnesota contract, whether for employment, the sale of a business, or otherwise, please contact one of the business and contract attorneys of Trepanier MacGillis Battina P.A.
About the Author:
Minnesota employment lawyer Bryan R. Battina represents both employers and employees in a variety of employment law matters, including negotiation of employment agreements and litigating employment agreement claims. Bryan may be reached at 612.455.0505 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota employment law firm located in Minneapolis, Minnesota.
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