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Minnesota Decision Is Cautionary Note For Employers That Hire Competitor’s Employees

Published by on July 26, 2011

In an unpublished decision, the Court of Appeals for Minnesota affirmed a district court’s enforcement of a noncompete covenant and awarded a former employer over $615,000 against a competitor who hired the employee bound by the covenant not to compete.  More after the break. Employee was employed by Medtronic, Inc., a medical technology company.  During Employee’s […]

In an unpublished decision, the Court of Appeals for Minnesota affirmed a district court’s enforcement of a noncompete covenant and awarded a former employer over $615,000 against a competitor who hired the employee bound by the covenant not to compete.  More after the break.

Employee was employed by Medtronic, Inc., a medical technology company.  During Employee’s employment, Employee signed a revised version of Medtronic’s standard employment agreement which contained a noncompete covenant that prohibited Employee from working on competitive products for a period of two years following the conclusion of his employment.  Employee received a restricted stock award of over $50,000 in exchange for signing the updated employment agreement.  Employee then accepted a position with St. Jude Medical S.C., a competitor of Medtronic.   St. Jude contacted Medtronic and stated that Employee’s employment would not result in any breach of Employee’s contract with Medtronic to the extent that it was enforceable.

Medtronic filed a lawsuit against Employee for anticipatory breach of contract.  Employee counterclaimed for declaratory and injunctive relief on the ground that the noncompete covenant was unenforceable and overbroad.  Employee requested that the district court limit the noncompete covenant to a reasonable geographic boundary and a time limit of no longer than one year.  St. Jude intervened and counterclaimed for declaratory and injunctive relief on the same grounds as Employee.  

The district court denied temporary injunctive relief and ten months after the lawsuit began, St. Jude instructed Employee to begin working in violation of the Medtronic noncompete covenant.  Medtronic then added a claim against St. Jude for tortious inference with a contract. 

After trial, the district court held that Medtronic’s noncompete covenant was enforceable because it “reasonably serves to protect a legitimate business interest.”  The district court concluded that the two-year duration was overly broad and reduced the length of the covenant to one year.  The district court found, however, that the geographic scope of the covenant was reasonable because it was limited to certain products.  The district court further concluded that Medtronic was entitled to judgment on its claim for tortious interference with contract against St. Jude and was awarded Medtronic over $615,000 in attorneys’ fees and other expenses in enforcing the covenant against Employee.     

The Court of Appeals affirmed, holding that the geographic scope of Medtronic’s noncompete covenant was reasonable under the circumstances because (a) the confidential information that Employee had access to was not specifically limited to the geographic area where he worked, and (b) the scope of the covenant was restricted to the specific product produced by Medtronic.  The Court of Appeals further held that Employee anticipatorily breached the noncompete covenant by accepting a position at St. Jude and St. Jude intentionally procured Employee’s breach by inducing him to accept its offer of employment.  The Court of Appeals rejected St. Jude’s argument that its interference was justified because it had a good-faith belief that Employee’s noncompete covenant was unenforceable because St. Jude produced no evidence to support its argument as it refused to disclose the basis for its assertion on the ground of attorney-client privilege . 

This Minnesota case highlights the risks for employers who hire applicants subject to a valid noncompete agreement.  For an interesting article about the benefits and risks of recruiting employees that already have a job, click here.

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