Under Minnesota law, all employees are subject to a fiduciary duty of loyalty to employers, which prohibits them from soliciting existing customers of the employer – whether for a competitor or a business the employee plans to set up – or otherwise competing against the employer while still employed. Rehabilitation Specialists, Inc. v. Koering (Minn. App. 1987). As explained by the Minnesota Supreme Court, an employee may not “feather his own nest at the expense of his employer while he is still on the payroll.” Sanitary Farm Dairies v. Wolf (Minn. 1961). Thus, for instance, an employee whose job duties include buying guns for his employer to re-sell may not mark ones he wants for himself at an artificially low price. Anderson v. Cabela’s Retails, Inc. (Minn. App. 2008). Loyalty also requires an employee refrain from interfering with or sabotaging an employer’s business relations. Thus, an employee may not encourage a customer to break off its contract with the employer, even if the employee believes in good faith that doing so would be justified. Marn v. Fairview Pharmacy Services LLC (Minn. App. 2008). Likewise, supplying a competitor with information about the salaries of coworkers, types of equipment necessary for a client, and timing to capture an account amounts to a breach of loyalty. Cenveo Corp. v. Southern Graphic Systems, Inc. (D. Minn. 2011).
Short of soliciting customers, however, the law permits employees to prepare for competition with an employer while still employed. This may include (1) printing business cards and marketing materials; (2) obtaining an Internet domain name; (3) hiring a programmer to create a website; (4) filing articles of incorporation; and (5) obtaining a certificate of assumed name. Guided frequently by feelings of betrayal as much as business judgment, companies frequently sue departing employees for fiduciary breaches.
This was the case in the decision of Workers’ Compensation Recovery, Inc. v. Marvin (Minn. App. 2004), which provides a useful cautionary tale for departing employees. There, the employee’s job duties included acting as the company’s primary contact with Benedictine Health Systems (“BHS”), the company’s most important client. Employer Workers Compensation Recovery, Inc. (“WCR”) worked with health-care facilities and their injured employees to limit workers comp insurance costs. As WCR’s fortunes diminished, the employee began to contemplate resigning and starting her own business. Near the end of her employment with the company, she set up a meeting with several BHS executives to discuss that company’s renewal for future services with WCR. At the meeting, the employee felt obligated to inform BHS that she would be resigning from WCR. She maintained that, although the BHS executives asked her to contact them after she resigned, no terms or contracts were discussed and no business was solicited. A few months later, BHS canceled its contract with WCR and indicated that it wanted to continue to work with the employee. Soon afterward, WCR sued its former employee. The court held that the employee had in fact breached her duty of loyalty, and granted a temporary restraining order prohibiting her from dealing with BHS for six months. This outcome could have been prevented easily had the employee simply waited until she left before contacting the customer.