When one or more of your employees resign to join a competitor or start a competing business you need to quickly evaluate your legal rights to prevent unfair competition that could injure your company.
Step One – Have Signed Non-Competes in Place for Key Employees
You cannot enforce a non-compete if you do not have one to enforce. If you think the departed employee signed a non-compete, look in the personnel file. If there are multiple agreements, make sure to get all of them. Review the terms with your attorney in light of the facts as you know them. There are several types of restrictive covenants in Minnesota – non-compete, non-solicitation (of customers), non-disclosure (of confidential information), non-disparagement, and non-recruitment (of employees), among others. The term “non-compete” is often used as a general reference to any restriction but a true non-compete prevents the employee from working in the same industry for a specific period of time, sometimes in a specific geographic territory. Non-solicitation-of-customer-provisions are becoming very common and may be more likely to be enforced by judges, as they are perceived as less restrictive.
Make sure the agreements were signed before the employee begins work or where in exchange for a payment or other consideration. Under Minnesota law, non-competes entered into merely in exchange for continued employment may not be valid.
If you have not previously required employees to sign non-competes and are contemplating doing so, resist the temptation to draft agreements in the most restrictive manner possible. An overreaching non-compete might be thrown out altogether. A reasonable non-compete is more likely to be enforced. Take the Goldilocks approach – limit the restriction only to what you need to reasonably protect your legitimate business interests and tailor the definitions to the actual job description and industry instead of using a template. Take time to prepare your agreements carefully. Typographical errors can also be fatal to enforcement.
If a former employee has solicited your customers or taken proprietary information and they did not sign a written agreement with protective restrictions, there might be other claims you can assert either by letter or in a lawsuit to protect your business. These potential claims include, but may not be limited to, breach of common law duty of loyalty, misappropriation of trade secrets, tortious interference, and trade defamation. Assuming there is evidence to support these types of claims, you can also assert them in conjunction with a breach of contract claim.
Step Two – The Cease-and-Desist Letter
Attorneys often send a cease-and-desist letter to the departed employee before launching into litigation. There are at least three good reasons for this: 1) Regardless of how confident you may be in your suspicions, it is possible that you were mistaken as to the former employee’s actions. It is better to find out before starting a lawsuit. 2) Many cease-and-desist letters are effective in stopping the unfair conduct without the need for litigation and the related cost. Sometimes a letter to the new employer enclosing a copy of the restrictive covenant agreement results in the former employee losing their new position. (Employers can face liability for hiring or continuing to hire an employee with a valid non-compete under a theory of “tortious interference” with a contract). 3) If the employee is in breach of the agreement and they ignore the cease-and-desist letter, at least you now have another piece of evidence to show the judge that you tried to resolve the matter without a lawsuit and that the former employee was put on notice. Make sure you demand a response to the letter by a specific date because time is of the essence in these situations.
Step Three – Computer Forensics and Gathering Evidence
As you prepare to send the cease-and-desist letter you should also be gathering evidence. An obvious starting point is LinkedIn to see where the employee has obtained new employment. Former co-workers are also a source of information. Monitor the former employee’s e-mail account because customers who have gone with him are prone to mistakenly contact the former employee using that person’s old e-mail address which provides insight as to what they are doing together.
Consider hiring a computer forensics company to review the former employee’s business computer (laptop, desktop, tablet and/or phone) to see what he or she did in the days or weeks leading up to resignation. For example, the former employee may have solicited customers, saved a copy of his business plan, e-mailed documents to her personal e-mail, copied documents to a flash drive, or stored documents on the cloud. If the former employee did any of this, and the forensics expert can show that it happened, the expert’s report is persuasive evidence of wrongdoing. A professional examination of this kind can cost thousands of dollars, however, so a decision whether to take this step must be made in balance with the severity of the threat posed by the former employee. Hiring a private investigator is also a possibility if you suspect, but are uncertain, that the former employee is engaged in wrongful activity.
Step Four – Starting a Lawsuit with a Summons and Complaint
If your concerns have not been resolved by sending a letter, and if the evidence supports a legal claim, you may need to sue the former employee. Before initiating a lawsuit of this kind, you should discuss with your lawyer the potential but unintended consequences that can result. One potential consequence is a counterclaim for unpaid commissions, wrongful termination, or an employment-related count. Another consequence may be that initiating a lawsuit makes the matter public record, if it drags on, this may implicate your customers as witnesses.
You and your attorney will have many other considerations to discuss as well. She will advise you whether to start an action in state or federal court. You might also have an arbitration clause in your written agreements. You will need to decide what claims to bring and whether to name the new employer as a co-defendant along with the former employee. You will need to review the factual allegations to make sure you have a solid basis for your claims. Finally, you will need to discuss the goals, strategy, and cost. Once you have established a game plan, you will need to have a process server personally serve each defendant with a summons and complaint and then your attorney will file the action with the court. Each defendant will then have a certain amount of time (either 20 or 21 days, depending) to provide you with an answer to the complaint.
Step Five – Filing a Motion for an Injunction in Minnesota
Once a case is filed, the court assigns a judge and court file number to the action. In most, but not all, unfair competition cases the plaintiff (i.e. you, the former employer) after serving and filing the summons and complaint, will seek an injunction to prevent a breach or continued breach of the non-compete. This is a request to the judge assigned to the case to order the former employee to stop working for a competitor, stop soliciting customers, return and stop using confidential information or some other directive.
Requests for injunctions are a form of “equitable relief.” Equitable relief is considered an extraordinary remedy applied only to preserve the status quo in a situation where monetary damages would not make the plaintiff whole or would be difficult to calculate after the fact. Judges are often asked to issue injunctions before a trial on merits and for this reason, they are very careful to ensure that the facts presented warrant such a strong form of relief.
To obtain an injunction your attorney will need to file a motion for a temporary restraining order, temporary injunction, or preliminary injunction depending on the forum and timing. The motion is a written request for relief. It is accompanied by a memorandum of law and supported by sworn declarations or affidavits from you and your other witnesses usually also attaching exhibits and documentary evidence such as a copy of the contract, computer forensic reports, and e-mails. It is very important that you work with your attorney to provide detailed statements about everything you know and how you obtained the information. The other side then usually has an opportunity to respond with its own memorandum of law and declarations. The judge then schedules and holds a hearing in the courtroom to hear arguments from counsel and then reach a determination. In Minnesota, witnesses usually do not testify at this hearing but it is possible. In most cases, the judge decides the motion based solely on the written submissions.
The judge may grant the relief as requested or deny it. The judge may also “blue pencil” the agreement and order relief less than that requested by the plaintiff, however, this still provides some form of protection. If a judge grants an injunction, she may require the plaintiff to first post a bond.
Step Six – Resolution
An order granting or denying an injunction is not technically the end of the case. A lawsuit ends with a trial, settlement or dismissal. As a practical matter, the judge’s order on a motion for injunctive relief (win or lose) will often lead to settlement or dismissal as little is left to fight over. Sometimes if the plaintiff does not obtain an injunction it will push on to seek monetary damages. Most civil lawsuits eventually settle. Non-compete cases can often be resolved based on a settlement agreement which addresses agreed-upon and compromised restrictions as to customers, activities, return of property, non-disparagement, time (duration), geography, and/or products as well as payment of money and attorney’s fees, among other factors. Note that parties to a non-compete can reach a similar type of settlement at the cease-and-desist letter stage without going through the cost of a motion for injunctive relief.
This is only a high-level description of how non-competes are enforced in Minnesota. Each case is different. If you have questions about enforcing a Minnesota non-compete agreement, contact the Minnesota non-compete attorneys at Trepanier MacGillis Battina P.A.
About the Author:
Trepanier MacGillis Battina P.A. is a Minnesota non-compete law firm located in Minneapolis, Minnesota. Their non-compete law attorneys can be reached at 612.455.0500.