In November, the Minnesota Court of Appeals made a ruling that should be a reminder to all employers who use non-compete agreements to revisit the simple logistics of how and when they ask employees to sign those contracts.
It also gave lawyers for employees like us another powerful court ruling to combat the enforcement of non-competes issued by sloppy employers.
The Court of Appeals ruled in Safety Center, Inc., v. Stier that the employee’s non-compete agreement was wholly unenforceable because the contract was not “ancillary to” the employee’s employment agreement with the company. In case you didn’t catch it—there are two agreements or contracts to pay attention to in this lesson: (1) the non-compete agreement itself and (2) the employee’s employment agreement with the company.
A fundamental rule about non-competes is that employees can’t agree to them without getting something in exchange. In contract law, you can’t get something for nothing.
Typically an employee gets a job in exchange for agreeing to a non-compete. He or she shows up at work on the first day and signs a non-compete. Assuming the non-compete is reasonable, no Minnesota court is going to later rule it unenforceable.
In other typical situations, employees accept written job offers that are made “contingent upon” signing a non-compete and perhaps other agreements when they show up for work. No problem with this non-compete's enforceability, either.
Here’s where the employer in the Stier case went wrong—and where we assume other employers have erred, too. In that situation, the employer made an offer of employment about a week before the employee’s start date. The employer then sent a letter to the employee confirming “acceptance of the position.” The letter discussed training, a start date, but made no mention of a non-compete. There were no contingencies mentioned—the job had been accepted. A week later, on the employee’s first day of work, the employer presented a non-compete which the employee, signed. She worked there until 2015 when she left and went to compete, at which point she got sued.
The Court of Appeals eventually ruled that the non-compete was unenforceable because the non-compete was not “ancillary to” the employment agreement, which had been accepted a week earlier. Furthermore, since Stier was not given something additional for the non-compete on her first day when she signed it (i.e., money), the non-compete could not be held valid.
What is the lesson here? Before starting your job, if you signed a non-compete that wasn’t connected to your employment contract or agreement, the non-compete might not be enforceable.
At first blush, it may seem like a technicality. But consider a hypothetical situation where an employee has been recruited to move across the country for a job. If the job was accepted, and the employee undertook the burden of moving cross-country, would it be fair to enforce a non-compete against that person, who didn’t get a fair chance to bargain for it? No.
The takeaway here: timing is everything and employees who are burdened by a non-compete with a former employer would be wise to take a look back and see if the situation in the Stier case happened to them.