Protecting Your Business: Preventing Wrongful Interference with Non-competition and Non-solicitation Agreements
Understanding wrongful interference with contract
When an employee who is subject to a valid non-competition or non-solicitation agreement leaves and begins competing with his or her former employer—either by creating a new business or by joining an existing competitor—the employee can be enjoined from wrongfully competing and held liable for breach of contract. While an injunction prohibiting continued violations of the non-competition or non-solicitation agreement should protect the former employer going forward, the ability to recoup losses caused by the breach will generally depend on the employee’s personal ability to pay. In some cases, this will mean a limited recovery.
But if the employee joins an existing competitor, it may be possible to recover damages from the competitor on a theory of wrongful interference with contract. Under Minnesota law, wrongful interference with a non-competition or non-solicitation agreement occurs if:
(1) there is a valid contract;
(2) the competitor knows about the contract;
(3) the competitor intentionally causes a breach of that contract; and
(4) the competitor’s actions are not justified.
In this type of case, a competitor intentionally causes a breach of contract by hiring an employee, despite knowing that the employee will be directly competing with a former employer in violation of a non-competition or non-solicitation agreement. It can also mean continuing to employ a new employee in a competing position after learning that the employee is subject to a non-competition or non-solicitation agreement. In both cases, however, the competitor must know about the non-competition or non-solicitation agreement in order for the competitor’s actions to be considered wrongful. For that reason, it is important for employers to act quickly in providing notice to the competitor that its newly hired employee is subject to such an agreement.
Once notice of the agreement has been provided, the competitor will be forced to either fire or reassign the employee, or to argue that their actions in causing a breach of the non-competition or non-solicitation agreement were justified. But in Minnesota, the burden of proving justification is always on the defendant, and Minnesota courts have held that interference with contract is unjustifiable when it is done for the purpose of injuring the former employer or benefiting the competitor.
Making your competition pay your attorney fees
There is one additional feature of a wrongful interference with contract claim that employers should keep in mind. On a claim for breach of a non-competition or non-solicitation agreement against a former employee, the employer can only recover its attorneys’ fees if the underlying employment agreement expressly provides for such recovery.
However, Minnesota courts have held that if a competitor’s interference with contract thrusts or projects the employer into litigation with the former employee—i.e., if the competitor’s actions make it necessary for the employer to sue the former employee to enforce the non-competition or non-solicitation agreement—the employer may recover whatever attorneys’ fees it reasonably incurs in pursuing its breach of contract claim. This can obviously make the thought of litigating this type of case more palatable to an employer, given the potential that the competitor will ultimately be stuck with the bill.
At Henson Efron, our attorneys have extensive experience enforcing non-competition and non-solicitation agreements, as well as defending employers accused of interfering with such agreements. If you’d like to learn more about how our experience and knowledge can help protect your business, please contact Henson Efron.
The purpose of this article is merely to provide general information and may not be construed as legal advice.