Source: https://trepanierlaw.com/enforceability-of-non-solicitation-of-employee-restrictions-the-grass-is-not-always-greener/
Timestamp: 2019-04-24 05:49:34+00:00

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Enforceability of Non-Solicitation of Employee Restrictions – The Grass is Not Always Greener - Trepanier MacGillis Battina P.A.
Employees who leave a company for greener pastures sometimes recruit their former colleagues to join them. Employment agreements designed to prevent this type of recruiting through the use of post-employment restrictions on soliciting employees are common in many states, including Minnesota. Employers typically include a non-solicitation of employee provision (also known as a “non-recruitment” of employees, “anti-raiding” or “non-poaching” provision) in conjunction with a prohibition on the solicitation of customers and a non-disclosure of confidential information provision. An increasing number of companies utilize a version of this triad in lieu of, or along with, a pure covenant not to compete. Surprisingly, however, there is a paucity of case law in Minnesota regarding non-solicitation of employee provisions. A recent Wisconsin Court of Appeals decision (discussed below) highlights the dearth of legal guidance in Minnesota.
No Minnesota appellate court has squarely addressed the enforceability of non-solicitation of employees covenants in a reported decision. It is generally assumed, however, that post-employment restrictions on recruiting employees are lawful in Minnesota and should be analyzed under the same legal framework as any other restrictive covenant. In order to be enforceable, therefore, the employer would have to demonstrate that it has a legitimate protectable interest, that the restriction is reasonably necessary to protect that interest, and the employee received adequate consideration, among other factors. See, e.g. Webb Publishing Co. v. Fosshage, 426 N.W.2d 445, 449-450 (Minn. Ct. App. 1988).
In Schwan’s Consumer Brands North America, Inc. v. Home Run Inn, Inc., No. 05-2763 (DWF/JJG), 2005 WL 3434376 (D. Minn. 2005), a judge in the U.S. District Court for the District of Minnesota denied a motion for an injunction by a plaintiff alleging, in part, breach of a 12-month non-solicitation provision by two former employees. The court found that the agreements did not appear to be supported by adequate consideration under Minnesota law, essentially applying the same analysis used for non-compete agreements. (In Schwan’s the defendant company apparently voluntarily agreed at oral argument that it would not hire any further Schwan’s employees for a period of 12 months.) In Frank B. Hall & Co. v. Alexander & Alexander, Inc., 974 F.2d 1020, 1024, n.5 (8th Cir. 1992), the Eighth Circuit Court of Appeals appeared to assume that an “anti-raiding” agreement was enforceable under Minnesota law and observed that the non-solicitation clause “did not prohibit the parties from merely hiring an employee of the other without solicitation.” It is probably safe to assume, therefore, that Minnesota courts will analyze a claim of breach of a non-solicitation of employee restriction in the much same way they look at other restrictive covenants.
“ReliaStar sought to enjoin KMG . . . from continuing to employ anyone employed by ReliaStar on December 14, 2004. . . As the district court emphasized, these employees (with the sole possible exception of Gibb) were not subject to non-competition agreements. A broad injunction whereby . . . the sales representatives who formerly worked for ReliaStar would all lose their jobs would have substantially harmed the employees and KMG.” Id. at *6.
In another employee solicitation dispute, this time involving the freight-brokerage industry, a court in Hennepin County, Minnesota, issued an injunction prohibiting “all” employees who used to work at one company (XPO) and who were still subject to a two-year non-solicitation provision with their former company (C.H. Robinson) “from soliciting or initiating contact regarding employment with any C.H. Robinson employee for the period of their non-solicitation agreement.” C.H. Robinson Worldwide, Inc. v. Kratt, No. 27-CV-1216003, 2013 WL 6222078 (Henn. Co. Dist. Ct., 4th Judicial Dist. of Minn., Jan. 17, 2013.) Again, the court did not prevent anyone who had already been solicited from continuing their employment. The court in C.H. Robinson emphasized the protected interest at stake, noting, “Plaintiff’s . . . [a]greements are properly read as preventing former employees from leveraging their relationships with current employees, whom they were exposed to as a result of their employment with Plaintiff, in an effort to misappropriate the goodwill that Plaintiff’s employees have developed with Plaintiff’s customers.” Id. at *24.
The solicitation of employees may also be unlawful in Minnesota if an executive solicits colleagues before she resigns her previous employment in violation of her common law duty of loyalty. In Sorin Group USA, Inc. v. St. Jude Medical, S.C., No. 14-4023 (JRT/JSM), 2016 WL 1301086 (Minn. 2016), Sorin Group sued St. Jude Medical for, inter alia, aiding and abetting a former sales manager to breach her duty of loyalty by soliciting a sales representative to move with her to St. Jude. The district court declined to dismiss the claim on summary judgment. Id. See also RESTATEMENT (SECOND) OF AGENCY § 393 cmt. e (1958) (an employee is liable if, before or after leaving the employment, he causes fellow employees to break their contracts with his employer).
In Central States Indus. Supply, Inc. v. McCullough, 279 F.Supp.2d 1005 (N.D. Iowa 2003), a federal court in Iowa, analyzing an allegation of breach of fiduciary duty under Iowa law, described the “Pied Piper” rule as the “principle that, before he terminates his employment, a top managerial employee may not solicit the departure of employees to work for a competitor[.] The rule is most clearly applicable if the supervisor-manager, as a corporate pied-piper, leads all of his employer’s employees away, thus destroying the employer’s entire business.” Id. at 1043-1044 (citing Massachusetts law).
In The Manitowoc Company v. Lanning, No. 2105-AP-1530, 2016 WL 4370181 (Wis. Ct. App. Aug. 17, 2016), plaintiff was awarded $97,844.78 in damages, along with $1 million in attorneys’ fees at trial in a case alleging a breach of an employee non-solicitation agreement. The Wisconsin Court of Appeals reversed the verdict. As an initial matter, the court held that provisions purporting to restrict solicitation of employees are governed by Wis. Stat. § 103.465 because they are a type of “covenant . . . not to compete.” Having decided that the provision was governed by the Wisconsin statute on non-competes, the court went on to hold that the provision was unenforceable under Wisconsin law because it was over-broad.
“[th]e NSE provision also extends to contacts that seem loosely connected, if at all, to Manitowoc’s competitive interests. It restricts Lanning from encouraging a Manitowoc friend to take a job with a noncompetitive employer simply because that employer happens to be a Manitowoc customer. This provision would seemingly prohibit Lanning from serving as a job reference for a former colleague who applies to work for a competitor, supplier, or customer of Manitowoc, or maybe who seeks to change industries altogether. The restriction even prohibits Lanning from encouraging a former colleague and friend to retire (“terminate their employment with Manitowoc”) to spend more time with his family. . . . Manitowoc’s stated interest—protecting itself from Lanning’s specialized knowledge of its talent base and his relationships with employees—does not justify the broad ban on the solicitation, inducement, or encouragement of any employee. Manitowoc is a large company with two divisions. Lanning worked in the crane division; his expertise and connections would not extend to all of Manitowoc’s employees. With respect to at least some of Manitowoc’s employees, Lanning posed no greater threat to Manitowoc than any other competitor or employer. To meet its burden, Manitowoc would also need to show that the provision serves some legitimate and unique competitive interest by prohibiting the encouragement, solicitation, or inducement of any employee to accept employment not only with competitors, but also customers or suppliers. Starbucks, for example, is one of its customers. Lanning’s non-solicitation provision would be violated if he encouraged a young former colleague to leave Manitowoc and work part time as a barrista at Starbucks to pursue graduate studies. Manitowoc must show how such a provision is reasonably necessary for its protection.” Id., pp. 13-14.
Minnesota, unlike Wisconsin, does not have a statute on enforceability of non-competes. (The State of Missouri has a specific statute regarding any “covenant in writing promising not to solicit, recruit, hire or otherwise interfere the employment of one or more employees.” Mo. Rev. Stat. § 431.202. Interestingly, the Missouri statute prohibits the use of such restrictions against “employees who provide only secretarial or clerical services.” See H & R Block Enterprises, Inc. v. Short, No. Civ. 06-608 (JNE/JJG), 2006 WL 3437491 (D. Minn. 2006) (applying Missouri law)) Wisconsin law is less forgiving than Minnesota law. Wisconsin courts will invalidate any non-compete that is unreasonable at all, in any aspect, and will not allow judicial modification, also known as blue-penciling. The outcome of the Manitowoc case, therefore, would not necessarily be the same under Minnesota law. The take-away for Minnesota employers, employees, and legal practitioners, is more general: that these types of restrictions are analyzed under the same state-specific analysis used for other restrictive covenants. Notably, the court in Manitowoc did not invalidate the agreement on a larger public-policy basis that such agreements, even if narrowly fashioned, could never be enforceable. It merely held that the specific clause in question was over-broad under the Wisconsin statute.
Many of these unanswered questions will likely be addressed at some point by a Minnesota appellate court, but in the meantime, employers, employees and their counsel should tread carefully in situations involving covenants not to recruit employees.
Minnesota non-compete attorney V. John Ella has extensive experience representing businesses in matters involving restrictive covenants. If you have any questions about non-solicitation agreements, please contact him at 612.455.6237 or jella@trepanierlaw.com. Trepanier MacGillis Battina P.A. is a Minnesota non-compete law firm located in Minneapolis, Minnesota.

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