Update: On June 27, 2018, the Minnesota Supreme Court overturned the decision made by the Minnesota Court of Appeals, discussed below. To read the Minnesota Supreme Court’s decision, click the following link: Minnesota Supreme Court Holds a Non-Compete Agreement Cannot Mandate an Injunction.
A surprising decision from the Minnesota Court of Appeals suggests that a provision in a non-compete agreement stating that in the event of a breach the employer “shall be entitled to an injunction” may be enforceable as a term of the contract, even though equitable relief is commonly understood to be an extraordinary remedy issued at the discretion of the district court. The recent ruling may shake long-held assumptions by some Minnesota non-compete attorneys that contractual terms purporting to mandate injunctive relief in the event of a breach are merely “boilerplate” and don’t have teeth. Among other things, this revelation has ramifications for attorneys drafting restrictive covenants for their clients.
The Minnesota Court of Appeals issued its opinion in the case of St. Jude Medical, Inc. v. Carter, et al., 27-CV-15-21203 (Minn. Ct. App. 2017) on July 10, 2017. Respondent Heath Carter resigned from St. Jude in August 2015 and accepted a position with a direct competitor, Boston Scientific, overseeing the marketing of electrophysiology (“EP”) products, despite a one-year restriction in his employment agreement from working directly or indirectly with the design, development, manufacture, marketing or sale of EP products.
Appellant St. Jude Medical sued Carter for breach of his employment contract in December of 2015 along with a claim against Boston Scientific for tortious interference. St. Jude then sought a temporary injunction to prohibit Carter from working for Boston Scientific. The district court denied the request for an injunction because it found that St. Jude failed to demonstrate a likelihood of success on the merits and that considering the balance of harms injunctive relief was not justified.
St. Jude proceeded to a jury trial in late 2016. At trial, the jury found that Carter had breached his contract. Prior to trial, St. Jude indicated that it was not seeking monetary damages for Carter’s breach of contract, but instead was seeking equitable relief consistent with the remedies provision in the employment contract. In post-trial order issued in November 2016, however, the district court denied St. Jude’s request for an injunction because St. Jude had failed to establish at trial that it had, or would, suffer the irreparable harm necessary to justify an injunction. The court then dismissed St. Jude’s complaint as a matter of law, and notwithstanding the jury’s verdict.
Carter’s employment contract with St. Jude contained a remedies provision stating, in part, as follows:
“In the event Employee breaches the covenants contained in this Agreement, Employee recognizes that irreparable injury will result to [St. Jude], that [St. Jude’s] remedy at law for damages will be inadequate, and that [St. Jude] shall be entitled to an injunction to restrain the continuing breach by Employee…”
Reviewing the case de novo, the Court of Appeals determined that it was necessary to defer to the parties’ intent to abide by the language in the employment contract, including the remedies provision. Noting that neither of the parties contested the validity of the employment contract, the Court found it “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” and “[b]ecause a presumption exists that the parties intend the language in the employment contract to have effect, we attempt to avoid construing the employment contract in a way that would render any of its provisions meaningless.” It rejected the argument that the type of remedies provision at issue was “boilerplate language.”
Further, the Court of Appeals held that “an inherent threat of irreparable harm may be inferred from the breach of a restrictive covenant, such as a non-compete or confidentiality covenant, and a court may impose at least temporary equitable relief.” It went on to say that, “if irreparable harm can be inferred from an alleged breach for purposes of a temporary injunction, it can be inferred from a [district] court’s actual finding of a breach.” Citing Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 92 (Minn. 1979). Thus, it held, “we agree with St. Jude that Carter’s breach creates an inference of harm, and that the language in the employment contract appears to adopt, or is at least consistent with, Minnesota case law supporting this proposition.” Id.
Confusingly, the Court of Appeals remanded the case and directed the District Court to consider the terms of the employment contract to determine whether any injunctive relief under the contract is warranted. “If the District Court determines injunctive relief under the contract is not appropriate, the District Court should consider whether to award equitable relief under its own discretion.” Id. at 13. The remand is confusing because, presumably, the district already determined not to award equitable relief under its own discretion. The appellate court appeared to take issue with the district court’s finding that there was not irreparable harm based, in part, on the language of the contract, while at the same time repeating the axiom that “the district court’s grant or denial of an injunction is generally within its discretion.”
It is notable that the appellate court decision comes almost two years after Carter resigned his employment and approximately one-year after the expiration of the non-compete agreement. If the district court enjoins Carter from working after two years of employment, it would be an unprecedented remedy in Minnesota law. Typically, injunctive relief is only available for one or at the most two years in these situations. It is simply odd to be considering injunctive relief after the passage of so much time. Respondent argued that Minnesota law does not allow a court to extend an “expired” injunction absent “special circumstances” citing Minn. Best Maid Cookie Co. v. Flour Pot Cookie Co., 412 N.W.2d 380, 385-86 (Minn. 1987). The appellate court seemed to suggest that this might be one of those special circumstances. In the absence of a finding of irreparable harm, however, there does not seem to be anything special about the circumstances at all that would justify injunctive relief, other than the appellate court’s concern that St Jude’s win at trial would otherwise be a “pyrrhic” victory. This aspect of the decision may push employers to assert that non-compete terms should be extended in other circumstances as well.
A significant but unanswered question resulting from St. Jude Medical, Inc. v. Carter is whether district courts will now feel compelled to pay heed to the language of a remedies clause when deciding whether to award equitable relief on a motion for temporary injunctive relief, as opposed to a post-trial motion. It is possible that Respondent will seek review from the Minnesota Supreme Court. Until or unless the higher court weighs in, however, the take-away is that attorneys drafting agreements with restrictive covenants should include a strong and clear remedies clause. The decision even opens the idea that attorneys drafting other types of contracts should take a fresh look at their remedies provisions as well.