On November 6, 2017, in Safety Center, Inc. v. Stier, No. A17-0360, 2017 WL 5077437 (Minn. Ct. App. Nov. 6, 2017), the Minnesota Court of Appeals issued an order clarifying the timing and consideration requirements for non-compete agreements in Minnesota.
On May 19, 2003, Joan Marie Stier (“Stier”) applied to be a part-time therapist at Safety Center, Inc. (“Safety Center”), a treatment center for special-needs sex offenders. That same day, she interviewed with Executive Director Dean Devries (“Devries”). The record is unclear whether Stier was offered a job at the time of the interview or whether a non-compete agreement was discussed. However, the following day Devries sent Stier a letter “to confirm Stier’s acceptance of the position we offered you.” The letter also asked Stier to attend training and outlined the terms of her employment including wages, at-will status, and start date. The letter did not mention a non-compete agreement.
Stier began work at Safety Center on May 27, 2003. That same day she filled out new-hire paperwork and was given a non-compete agreement, which she signed. Stier remained employed by Safety Center for many years and eventually became its Program Director. In early 2015, Stier resigned her employment after starting her own competing business. Safety Center sued following Stier’s resignation claiming that she had violated the terms of her non-compete agreement.
In analyzing whether Stier violated the non-compete agreement, the Court began with a reminder that non-compete agreements are generally disfavored in Minnesota because they restrain trade. Nonetheless, such agreements may be permitted if they are ancillary to an employment agreement (i.e. entered into at the inception of the employment relationship). If not ancillary to the employment agreement, non-compete agreements are only allowed if bargained for by the parties and if the employer provides the employee independent consideration beyond the job opportunity.
Ultimately the Court held that the non-compete agreement between Safety Center and Stier was not enforceable. The Court reasoned that, based upon language of the May 20 letter, the employment relationship must have started on or before that date. However, because Stier was not presented with or informed of the non-compete agreement until a week later, the agreement was not ancillary to employment or entered into at the inception of the employment relationship.
This case is an important reminder for employers that wish to utilize non-compete agreements in Minnesota. Such agreements must be clearly communicated to potential employees before or at the time of an employment offer and should be reiterated in any follow-up communications. If not, the employer must bargain for the non-compete agreement and must offer separate consideration over and above employment itself.
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