In St. Jude Med., Inc. v. Carter, 913 N.W.2d 678 (Minn. June 27, 2018), the Minnesota Supreme Court was asked to decide whether an injunction was mandatory in a non-compete dispute when the terms of the non-compete agreement stated that the employer was entitled to an injunction if the employee breached the agreement. The Court held that the district court was not required by the terms of the agreement to conclude that the requirements for issuance of an injunction had been met. Rather, the district court’s proper role was to fully consider whether the employer’s legal remedies were clearly inadequate and whether an injunction was necessary to prevent great and irreparable injury. The case demonstrates the employer’s need to establish evidence of irreparable damage when seeking an injunction and the danger of relying solely on contract language when seeking the injunction. The decision is a welcome development for employees because boilerplate clauses stating that the employer is entitled to an injunction for breach of a non-compete agreement are not automatically enforceable.
Heath Carter (“Carter”) began working for St. Jude Medical (“SJM”) in 2007, holding a variety of positions related to the company’s electrophysiology products, including working as part of a marketing team for three years. As part of his employment with SJM, Carter signed an employment agreement that included a non-disclosure covenant, a non-competition covenant, and a remedies clause. The remedies clause stated that “[i]n the event [Carter] breaches the covenants contained in this Agreement, [he] recognizes that irreparable injury will result to SJM, that SJM’s remedy at law for damages will be inadequate, and that SJM shall be entitled to an injunction to restrain the continuing breach by [Carter].”
In August 2015, Carter resigned from SJM and began working for Boston Scientific Corporation. SJM filed suit against Carter and Boston Scientific in December 2015, alleging that “Carter materially breached his employment agreement with SJM in violation of his noncompetition covenant . . . .” In addition, SJM claimed that “Carter’s employment in a directly competitive marketing management position with Boston Scientific also creates a direct risk and imminent threat that he either already has or will necessarily disclose, exploit and/or use SJM’s Confidential Information on behalf of Boston Scientific to SJM’s detriment, in violation of his employment agreement.” SJM disavowed any claim for money damages based on its breach of contract claim against Carter, seeking only an injunction.
Lower Courts Disagree on Whether to Issue Injunction
An injunction is an equitable remedy. To be granted an injunction, a party must show that (1) any remedy at law would be inadequate; and (2) that an injunction is necessary to prevent great and irreparable injury.
The district court found that Carter breached his employment agreement, but the court did not grant an injunction. The court held that SJM, as the party seeking permanent injunctive relief, was required to demonstrate a clear threat of irreparable harm in the absence of such relief. The court noted that although an inference of irreparable harm may be justified in some cases involving the breach of a restrictive covenant, the evidence in this case did not support such an inference. The court found that SJM was unable to prove that Carter disclosed any confidential information or that it sustained any monetary damages. Accordingly, the district court declined to grant injunctive relief.
The Minnesota Court of Appeals reversed and remanded to the district court to reconsider SJM’s right to equitable relief under the agreement, stating that the district court must enforce contractual provisions to prevent the provisions from becoming meaningless and to ensure that the non-breaching party does not lose the benefit of its bargain. The court of appeals held that at least during the one-year period commencing upon Carter’s termination from St. Jude, the district court should have enforced the remedies provision by awarding St. Jude injunctive relief against Carter.
Minnesota Supreme Court Holds That a Non-Compete Agreement Cannot Mandate an Injunction
Carter appealed to the Minnesota Supreme Court. The Court addressed the question of: What effect does a contract provision that addresses the availability of equitable relief have on a district court’s exercise of its equitable powers?
SJM contended that the agreement established both elements required for an injunction, because the terms of the agreement state that “irreparable injury will result to SJM” upon a breach by Carter, “that SJM’s remedy at law for damages [for that breach] will be inadequate, and that SJM shall be entitled to an injunction to restrain” any further breach by Carter.
The Court explained that allowing the terms of private agreements to dictate whether a court must issue an injunction would interfere with a court’s equitable jurisdiction and powers. A private agreement cannot resolve the legal questions that require an exercise of judicial authority, such as whether a remedy at law would be inadequate, or whether an irreparable injury exists that requires equitable relief. Determining whether the requirements for equitable relief have been met is for the court to decide in the context of the facts of a specific case and a specific dispute.
Accordingly, the Minnesota Supreme Court held that the district court was not required by the terms of the agreement to conclude that the requirements for issuance of an injunction had been met.
Minnesota Supreme Court Finds Insufficient Evidence to Issue an Injunction
The Minnesota Supreme Court next evaluated whether the district court erred by declining to grant a permanent injunction in this case. The burden of proof is on the party seeking an injunction to establish that the legal remedy is not adequate, and that the injunction is necessary to prevent great and irreparable injury. Irreparable injury can be actual or threatened. The party seeking a permanent injunction must show that irreparable injury has resulted, or will in all probability result, and the threatened injury must be real and substantial.
Circumstances in which it may be appropriate for a district court to infer irreparable harm include situations where customer good will is at stake, when an employee takes business secrets with an intent to benefit from the secrets, or when a risk exists that the secrets will be disclosed in the subsequent employment and result in irreparable damage. Breach of a covenant not to compete, standing alone, does not so readily indicate irreparable injury to the employer.
The Supreme Court reviewed the evidence from the trial. The district court had noted the lack of evidence of actual harm. Indeed, SJM conceded that actual disclosure of confidential information did not occur. In the absence of evidence of actual harm, SJM needed an inference of harm to support its request for an injunction. The Court explained that SJM was required to show more than the breach of the restrictive covenant, and it could not satisfy its burden of proof to support an inference of harm by relying solely on Carter’s departure to work for a competitor. Further, there was no evidence that Carter took business secrets when he left SJM, and SJM did not contend that customer goodwill was at stake. Finally, the Court held that the language of the agreement was not sufficient to establish an inference of irreparable harm. The Court explained that although a court may consider contractual provisions when evaluating whether to infer harm, the agreement added little to SJM’s case beyond a bare assertion that SJM would suffer irreparable harm.
After considering the whole record, the Minnesota Supreme Court saw no abuse of discretion in the district court’s decision not to draw an inference that SJM faced irreparable harm from Carter’s breach of the agreement.
Lessons for Employers Drafting or Seeking to Enforce a Non-compete Agreement
In light of the Minnesota Supreme Court’s decision in St. Jude, employers seeking an injunction to enforce a non-compete agreement should gather evidence to show actual or threatened injury that cannot be remedied by monetary damages. Such evidence should show that customer goodwill is at stake, the former employee has taken business secrets with an intent to benefit from them, or when there is a risk that the secrets will be disclosed in the subsequent employment. Breach of a covenant not to compete, standing alone, will not automatically justify injunctive relief.
If you have any questions about Minnesota non-compete law or are involved in litigation over a Minnesota non-compete agreement, please contact one of the Minnesota non-compete attorneys at Trepanier MacGillis Battina P.A. The firm can also assist you in drafting or negotiating your non-compete agreement.
About the Author:
Minnesota non-competition lawyer Bryan R. Battina is a seasoned litigator and trial attorney with extensive experience in employment law litigation, including litigation of non-compete disputes. Bryan may be reached at 612.455.0505 or email@example.com. Trepanier MacGillis Battina is a Minnesota non-competition law firm located in Minneapolis, Minnesota.