In Gavaras v. Greenspring Media, LLC, 994 F.Supp.2d 1006 (D. Minn. 2014), the United States District Court for the District of Minnesota issued a declaratory judgment finding a non-compete agreement unenforceable because its terms were unclear, vague, overly broad and incomplete. The court also declined to apply the “blue-pencil doctrine” to make the non-compete agreement enforceable, as doing so would require the court to rewrite the agreement wholesale, and not merely modify the duration and territorial scope of the agreement.
Thomas Gavaras (“Gavaras”) entered into a non-compete agreement upon the commencement of his employment with Minnesota Monthly Publications, Inc. (“MMP”) on January 25, 1997. The terms of the non-compete agreement were as follows:
In consideration of your employment, for a period of time commencing upon your employment by [MMP] and ending two (2) years following the date you cease to be an employee of [MMP] for any reason whatsoever, other than if [MMP] fails to fulfill the terms of its written employment agreement effective ___________ (the “Non-Compete Period”), you agree to not engage in any activities in competition with [MMP].
This non-compete is specifically restricting your ability to work for [competitor] MSP Communications or any of its related operations, except if your employment is involuntary [sic] terminated by [MMP].
Further, you agree to not disclose sales list, financial information or other trade secrets of [MMP] to others under any circumstances.
In addition, the document stated, “this Agreement shall be binding and inure to the benefit of MMP, its successors and assigns.”
Gavaras accepted at-will employment as Promotions and Sales Development Manager, based upon an employment proposal offered by MMP. The proposal specified terms of Gavaras’ employment: (1) he would receive an initial base salary of $40,000; (2) he would receive three weeks of vacation during his first year; (3) his vacation would increase to a maximum of four weeks every following year; (4) he could bank vacation days up to a maximum of 320 hours; and (5) he was eligible to join the company’s 401(k) plan, wherein MMP would match 7.5% of his base salary. Neither party signed the proposal.
In 2001, Gavaras was promoted to Director of Operations and Marketing, Expositions and Events. In 2005, Greenspring Media Group, Inc. (“Greenspring”) purchased MMP’s assets and became Gavaras’ employer. In July 2013, Hour Acquisition Group, LLC (“Hour”) purchased MMP from Greenspring and Gavaras was given a new title: Director of Event Operations. Gavaras claimed that Hour changed his employee benefits, such as reducing his vacation time to three weeks and not allowing him to bank his unused vacation hours.
Gavaras moved the court for a temporary restraining order, which the court treated as a motion for a declaratory judgment that the noncompetition agreement was unenforceable, so that he could accept employment with the Builders’ Association of the Twin Cities (“BATC”) as its Marketing and Education Manager. The position with BATC required Gavaras to work on BATC’s inaugural home tour, a task similar to one that he previously performed for MMP. Gavaras contended that since Hour presented him with a new “Application for Employment” and an I-9 form, that he should have been treated as a new Hour employee, not subject to the 17-year-old non-compete agreement signed with MMP.
The Minnesota Uniform Declaratory Judgments ACT
Minnesota’s Uniform Declaratory Judgments Act allows courts “to declare rights, status, and other legal relations whether or not further relief is or could be claimed.” Minn. Stat. §555.01 (2013). The court has no jurisdiction over a declaratory judgment proceeding unless there is a justiciable controversy. Seiz v. Citizens Pure Ice Co., 290 N.W.2d 802, 804 (Minn. 1940). “A justiciable controversy exists if the claim (1) involves definite and concrete assertions of right that emanate from a legal source, (2) involves a genuine conflict in tangible interests between parties with adverse interests, and (3) is capable of specific resolution by judgment rather than presenting hypothetical facts that would form an advisory opinion.” Onvoy, Inc. v. ALLETE, Inc., 736 N.W.2d 611, 617-18 (Minn. 2007) (citing State ex rel. Smith v. Haveland, 25 N.W.2d 476-77 (Minn. 1946); Seiz, 290 N.W.2d at 804). The Gavaras court determined that because the construction and effect of a contract were questions of law for the court, and since the parties contested the enforceability of the non-compete agreement, the case was properly amenable to declaratory judgment.
Minnesota Law Regarding Non-Compete Agreements
Under Minnesota law, non-compete agreements are strictly construed. Prow v. Medtronic, Inc., 770 F.2d 117, 120 (8th Cir. 1985). Minnesota courts carefully scrutinize non-compete agreements to verify they are “necessary for the protection of the business or good will of the employer,” and that the restriction on the employee is no greater than “necessary to protect the employer’s business, regard being had to the nature and character of the employment, the time for which the restriction is imposed, and the territorial extent of the locality to which the prohibition extends.” Bennett v. Storz Broad. Co., 134 N.W.2d 892, 899 (Minn. 1965).
Gavaras Court Finds the Non-Compete Agreement Unenforceable, as Written
The Gavaras court invalidated the MMP non-compete agreement for several reasons. First, the court found that the non-compete agreement was explicitly contingent upon the terms of MMP’s written employment agreement with Gavaras. No such agreement, however, existed. The court concluded that the employment proposal could not be considered the written employment agreement, because it was not signed and contained no concrete terms for which Gavaras bargained or by which he could have been bound.
Second, the court found the non-compete agreement was invalid based on other drafting ambiguities. No date was filled in the blank next to the word “effective.” The first and second paragraphs were conflicting: one did not allow Gavaras to work for any competitor and the other allowed him to work for a specific competitor if he was terminated by MMP. The agreement did not define any competing activities. There was no geographic limitation on where Gavaras could not work. Lastly, Gavaras’ job coordinating sales and events entailed broad responsibilities that would apply to nearly any position he would seek elsewhere. The court found that the non-compete agreement failed to put Gavaras on notice of what would constitute a breach of the agreement, and that it was not clear what the agreement restricted Gavaras from doing.
For those reasons, the court ruled that the non-competition agreement was unclear, vague, overly broad and incomplete, as written. The court concluded that a declaratory judgment finding the non-compete agreement facially unenforceable was warranted.
The Gavaras Court Declines to Apply the Blue-Pencil Doctrine
The Gavaras court also decided not to apply the blue-pencil doctrine to cure the defects in MMP’s non-compete agreement. Under Minnesota law, a court may modify a restrictive covenant to make its duration and territorial scope reasonable. See Bess v. Bothman, 257 N.W.2d 791, 794-95 (Minn. 1977) (explaining the blue-pencil doctrine). The Gavaras court concluded that applying the blue-pencil doctrine did not make sense, as doing so would require more than modifying the duration and territorial scope of the agreement. Instead, the court found that modifying the agreement would require the court to rewrite the agreement “wholesale,” and rewriting would “require the court to divine the parties’ intent at the time of contracting, seventeen years after the fact, and with a different employer.” As such, the court declined to apply the blue-pencil doctrine.
The Gavaras decision highlights the fact that Minnesota courts will critically review non-compete agreements between employers and employees and that such agreements must be carefully drafted. The court found that MMP’s non-compete agreement was an unclear, vague, overly broad and incomplete as it was drafted. Minnesota employers should ensure that when drafting a non-compete agreement, the contract is clearly worded, internally consistent, necessary for the protection of the business or good will of the employer, narrowly tailored, and limited in geographic scope and duration.
Further, the Gavaras decision illustrates that Minnesota courts will not always apply the “blue-pencil doctrine” to remedy or eliminate defects in an unclear, vague, overly broad and incomplete non-compete agreement. It is unlikely that a Minnesota court will “blue pencil” a non-compete agreement where to do so would require the court to rewrite the agreement wholesale, and where rewriting would require the court to perceive the parties’ intent at the time of contracting.
For advice on noncompetition agreements, employment contracts, and other employment law issues, contact the Minnesota employment law attorneys of Trepanier MacGillis Battina P.A.
About the Author:
Minnesota employment law attorney Jim MacGillis advises clients on employment law matters such as noncompetition agreements, employment contracts, and preserving trade secrets. Jim may be reached at 612.455.0503 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota employment law firm located in Minneapolis, Minnesota.