In Safety Center, Inc. v. Stier, 903 N.W.2d 896 (Minn. Ct. App. 2017), the Minnesota Court of Appeals affirmed the lower court’s decision declining to enforce a non-compete agreement presented to the employee on her first day of employment because the employee previously received an offer letter purporting to “confirm” her acceptance of the position before the non-compete agreement had been presented to her. Safety Center highlights the importance of the employer’s offer letter and the need for Minnesota employers to present non-compete agreements to job applicants as a condition of hire before informally offering a position.
Stier interviewed for a part-time therapist position at Safety Center, Inc. on May 19, 2003. The next day, Safety Center’s Executive Director sent Stier a letter to “confirm the acceptance of the position offered.” It also laid out the terms of employment, indicating Stier’s hourly wage, her at-will status, and that her first day of work would be on May 27, 2003. The May 20th letter made no mention of a non-compete agreement.
Stier showed up for work on May 27, 2003. She filled out her new-hire paperwork and was presented with a non-compete agreement, which she signed. The non-compete agreement limited Stier’s ability to provide services to Safety Center’s clients in any competitive capacity for one year from the termination of employment. Stier remained employed at Safety Center for eleven years, eventually becoming program director.
In late 2014, Stier established another treatment program for special-needs sex offenders and incorporated a new company. She resigned from Safety Center in early 2015. Safety Center then filed a lawsuit to enforce the non-compete agreement.
District Court Holds Non-Compete Unenforceable
Under Minnesota law, non-compete agreements are permitted if they are “bargained for” by the parties and if there exists independent consideration beyond the employment opportunity provided to the employee. But, when an employer and employee enter into a non-compete agreement “at the inception of the employment relationship,” independent consideration is not required for a non-compete agreement to be enforceable. Overholt Crop Ins. Serv. Co. v. Bredeson, 437 N.W.2d 698, 702 (Minn. Ct. App. 1989). Where the parties to an oral employment agreement reached the agreement before the employee was informed of a non-compete agreement, however, the non-compete agreement is not ancillary to commencement of employment and requires independent consideration. See Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161,164 (Minn. Ct. App. 1993).
In Safety Center, the parties isolated the issue of whether the non-compete agreement was enforceable by bifurcating the trial. The district court determined after trial on the isolated issue that the non-compete agreement was not ancillary to the initial employment agreement, based on its finding that Safety Center and Stier had entered into an employment agreement before Stier was informed of or presented with the non-compete agreement. The district court also found that no independent consideration supported Stier’s execution of the non-compete agreement and, therefore, concluded that the agreement is not enforceable under Minnesota law.
Minnesota Court of Appeals Agrees Non-Compete Presented on First Day Not Enforceable
The Minnesota Court of Appeals affirmed the decision of the district court that the non-compete was unenforceable even though it was presented to Stier on her first day of employment. The court held that the record supported the district court’s finding that the employment agreement was made before Stier was informed of or presented with the non-compete agreement. Even though the parties could not remember whether there was an offer and acceptance before delivery of the offer letter, the court found the language confirming the “acceptance of the position” was sufficient to support the district court’s finding of an employment agreement before Stier arrived for work. Because the employment agreement was formed days before Stier was presented with or notified of the non-compete agreement on May 27, 2003, the Court of Appeals found the non-compete agreement was not signed at the “inception” of the employment agreement and cannot be considered ancillary. Finally, the Court of Appeals noted that because Safety Center made no argument that there was independent consideration provided to Stier in return for signing the non-compete agreement, the district court correctly concluded the non-compete agreement was not enforceable.
The court’s ruling in Safety Center is unremarkable in that it reinforces Minnesota’s long-established requirement that to be supported by consideration, a Minnesota non-compete agreement must be entered into at the inception of the employment relationship or supported by independent consideration, such as a raise or bonus.
The Safety Center decision is important, however, because it makes clear that a non-compete agreement presented to the employee on his/her first day of employment will not be enforceable when the parties have previously established an employment agreement (e.g., through delivery and acceptance of the job offer).
The decision also highlights the importance of the employer’s job offer letter. In Safety Center, the offer letter made no mention of the non-compete agreement and the parties could not remember whether there was an offer and acceptance before the employer delivered the letter. The Court of Appeals found the offer letter presented sufficient evidence to support the district court’s factual finding that the parties had reached an employment agreement before the employee arrived for her first day of employment and was presented with the non-compete agreement.
Following Safety Center, employers should carefully review their offer letters to ensure they attach the non-compete agreement, require the job applicant to sign the non-compete agreement as a condition of hire, and avoid using language suggesting the parties have already reached an employment agreement.
If you have questions about non-compete enforcement in Minnesota or are involved in a lawsuit regarding a Minnesota non-compete agreement, contact the Minnesota non-compete attorneys of Trepanier MacGillis Battina P.A.
About the Author:
Minneapolis non-competition lawyer Craig W. Trepanier represents both employers and employees in a variety of non-competition matters, including negotiation of non-compete agreements and litigating non-compete agreement claims. Craig may be reached at 612.455.0502 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minneapolis non-competition law firm located in Minneapolis, Minnesota.