Every business owner knows that clarity of purpose is essential for a company to be successful. Knowing and articulating why you do what you do enables management and staff to collaborate, innovate, and find new and better ways to conduct business.

Recent Minnesota case law highlights the need for businesses to be equally clear when drafting restrictive covenants in employment contracts. Ambiguous or confusing language can render a restrictive covenant unenforceable, leaving your business, confidential information, and customer relationships at risk.

In Moeschler v. Honkamp Krueger Fin. Servs., Inc., 2021 WL 4273481 (D. Minn. Sept. 21, 2021), the plaintiff, a former employer of the defendant employee, sued the employee for allegedly breaching a non-solicitation and confidentiality provision in the parties’ employment agreement. The former employer also sued the employee’s new employer alleging that it tortiously interfered with the employee’s contract with his former employer. The former employer sought to preliminarily enjoin the employee, and his new employer, from continued breaches of the restrictive covenants and other tortious acts.

The court denied the employer’s injunction motion because the non-solicitation clause was “unintelligible,” “ma[de] no sense,” and was “gibberish.” And the Court refused the employer’s request to “fix” the drafting issues because it would have required supplying a crucial term, as opposed to correcting a typographical error. As a result of “abysmal drafting,” the Court could not find that the employer was likely to prevail on its claim that the employee violated the non-solicitation clause.

In another case involving the same employer, Fulton v. Honkamp Krueger Fin. Servs., Inc., 2020 WL 7041766 (D. Minn. Dec. 1, 2020), the Court held that the employment agreement at issue was “very poorly drafted,” that it “appear[ed] to be stitched together from parts of other employment agreements,” and that it contained “multiple grammatical, typographical, and other errors.” The Court went on to say that the non-compete was so “ambiguous that it may be unenforceable.” The employer’s request for injunctive relief was denied. See also Virtual Radiologic Corp. v. Rabern, 2020 WL 1061465 (D. Minn. Mar. 5, 2020) (finding non-compete amendment was “poorly drafted” and employer attempting to enforce it “had a particularly difficult time explaining the meaning of the amendment” despite having drafted it); Gavaras v. Greenspring Media, LLC, 994 F. Supp. 2d 1006 (D. Minn. 2014) (holding non-compete was “unclear, vague, overly broad and incomplete” and therefore “facially unenforceable”).

These decisions show that it is incredibly important to get restrictive covenants drafted right the first time, or to revise existing agreements if necessary. Under Minnesota law, courts often construe an ambiguous contract against the party responsible for drafting it (i.e., the employer). That can be fatal to enforcing restrictive covenants because courts look upon non-compete agreements with disfavor and will carefully scrutinize the language to ensure that it is not unnecessarily broad or burdensome. Additionally, a well-crafted non-competition or non-solicitation provision will often dissuade departing employees and potential new employers from testing the enforceability of your agreement, saving you from expensive and time-consuming litigation. And if you must enforce it, you certainly don’t want the judge referring to your contractual language as “gibberish.”

If you have questions about your current restrictive covenants, or if you are considering adding such clauses to future employment agreements, we can help. Our attorneys have extensive experience in drafting and litigating non-competition and non-solicitation agreements and other restrictive covenants. If you’d like to learn more about how our knowledge can help protect your business, please contact Henson Efron. 

The purpose of this article is merely to provide general information and should not be construed as legal advice.

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.