Non-Compete provisions have their utility: if an employer desires to keep its key employees from leaving at some point and stealing all of the clients they met as a result of their work with their original employer, a reasonable non-compete will help keep the employer’s clients with the employer. However, based on the power employers wield when hiring an employee, in most cases, these non-compete provisions must be reasonable in both scope and duration, while also being carefully written to do what they are supposed to do.
In the case of Miller v. Honkamp Krueger Fin. Servs., Inc., the employee, a financial advisor, signed an employment agreement at the beginning of her employment with Honkamp Krueger (“HKFS”). The employment agreement included a non-compete and non-solicitation provisions. However, 10 years after her initial employment, HKFS and Miller entered into an ancillary agreement that did not include a non-compete provision.
After HKFS was purchased by another company, Miller left her employment with HKFS, and sought a declaratory order stating that the restrictive covenants of the ancillary agreement were not enforceable, and later sent written notice to HKFS that she was terminating the employment agreement she signed originally, to the extent it survived the ancillary agreement. HKFS filed a cross-complaint against Miller, and was awarded a preliminary injunction against Miller enforcing the non-compete and non-solicitation provisions.
The original employment agreement read as follows:
Employee further covenants that for a period of one year following the termination of Employee’s employment for whatever reason, Employee will not, within the Company’s market area, directly or indirectly, either as a sole proprietor, partner, stockholder, director, officer, employee, consultant or in any other capacity, conduct or engage in, or be interested in or associated with, any person or entity which engages in the “Business” (as defined above), working with CPA firms. For purposes of this Paragraph, the “Company’s market area” includes, but is not limited to, any state in which HKFS has conducted business at any time in the preceding twelve months.
However, in the “Term” portion of the agreement, it stated, “Employment is at will; however the parties agree that either party may terminate the Agreement on written notice.” Based on the plain language of the agreement, only written notice was required to terminate the agreement and all of its associated terms. As a result, the 8th Circuit Court of Appeals found the entire agreement, including the non-compete provision, inoperable. In coming to this conclusion, the court noted that the agreement was “no exemplar of precision.”
In regard to the non-solicitation provision, which was included in the ancillary agreement, rather than the canceled employment agreement, the court found that the state of South Dakota, where the employee was working, generally disfavored “restraint of a lawful profession, trade, or business” as public policy, and would not enforce an agreement that kept vendors from accepting unsolicited business. With that, the court vacated the preliminary injunction issued by the district court.
While laws across the states vary, the developing trend is for courts to disfavor non-compete agreements, as they are considered harsh on employees, and restrictive of free trade. While non-competes in Minnesota can still be valid, they are generally disfavored unless narrowly tailored. As you can see above, one must be precise when crafting a non-compete or non-solicitation agreements, or have their entire agreement thrown out. If you, or your organization, need assistance in crafting agreements for your employees that work, contact Wiley Reber Law, for experience that works.