Last month, this Blog highlighted a Minnesota decision evaluating the consideration required for non-compete agreements entered into after the commencement of employment. As that decision held, such agreements must be supported by valuable consideration over and above continued employment.

This month, in Safety Center, Inc. v. Stier, Case No. A17-0360 (Minn. App., Nov. 6, 2017), the Minnesota Court of Appeals weighed in on the consideration required for non-compete agreements entered into at the commencement of employment. In doing so, the court issued an important reminder to employers that impose non-competes as a condition of employment: if the conferral of at-will employment is to serve as the only consideration for a non-compete agreement, then the agreement must be presented to the employee before the offer of employment is accepted. This timing for the presentation of the non-compete agreement to the new hire is different from the looser requirements applicable in most states.

Background

On May 19, 2013, Joan Stier interviewed for a part-time therapist position at Safety Center, a treatment center for special-needs sex offenders. Shortly thereafter, Safety Center made an offer of employment to Stier, which she accepted.

Safety Center sent Stier a letter confirming her acceptance of the job. The letter discussed Stier’s rate of pay and other terms of employment, but made no mention of the need for a restrictive covenant agreement. Nevertheless, on Stier’s first day of work, she was handed a non-compete agreement and told to sign it in order to be able to commence employment. Stier signed the agreement and proceeded to work for Safety Center for nearly twelve years, eventually attaining the position of Program Director.

In 2015, Stier resigned from Safety Center and started a competing treatment center, in express violation of the non-compete agreement she signed on her first day of employment. Safety Center sued and sought enforcement of the agreement.

The Court’s Analysis

The Minnesota Court of Appeals relied upon well-settled law in holding that Stier’s non-compete agreement was unenforceable. When a non-compete agreement is not specifically made part of the offer of employment, i.e., ancillary to the employer’s offer and employee’s acceptance, there must be independent consideration for the non-compete. This holds true whether the non-compete is presented to the employee on the first day of employment, or the tenth year of employment.

Critical to the court’s decision was its determination that an offer was made by Safety Center, and accepted by Stier, before Safety Center ever advised her of the requirement of a non-compete agreement. In other words, the non-compete was not “ancillary” to the employment offer and acceptance. Consequently, Safety Center could not create an enforceable non-compete agreement without providing Stier with independent consideration for signing it, over and above continued employment. Safety Center failed to do that, and, therefore, the court refused to enforce the agreement.

The Takeaway

This case serves as an excellent reminder that Minnesota employers should describe the requirement of a non-compete agreement in the job offer to a prospective employee, and perhaps include a copy of the non-compete with the job offer.