Readers of this blog by now are acquainted with Minnesota’s strict consideration requirement for enforcing non-competes. To recap, consideration is fancy language for something given in exchange for something else. For an employer’s restrictive covenant (non-competition or non-solicitation agreement) to be enforceable in Minnesota, the employee ordinarily must have received something of value in exchange for it. This may be a bonus, promotion or if the non-compete is made a condition of employment, the job itself. The latter scenario is called a non-compete “ancillary to employment.” A non-compete signed as much as a day after the onset of work is normally unenforceable. Such a “mid-stream” non-compete could not have been given in exchange for the job, because the job already belonged to the employee. Or so the reasoning goes. (NOTE: This is not the law of all states. In many others, a non-compete given in exchange for retention of employment, i.e. sign this or you will be fired, will suffice).
But what happens when a company undergoes a change of ownership, its Minnesota employee remains at the the same desk doing the same work under the same supervisors for the same customers as before, and is given a non-compete to sign with the new owners (essentially identical to his/her existing non-compete) that arises within a contract declaring that commencement of employment is retroactive to two weeks earlier, and then some time later said employee quits and begins work for a competitor? The answer is somewhat surprising. Reversing a lower court summary judgment ruling in favor of an employee, the Minnesota Court of Appeals in Wells Fargo Ins. Servs. U.S. v. Galioto (Minn. Ct. App. Sept. 16, 2019) ruled that contractually backdating a start date does not in fact render the employment “continuing” and the non-compete, therefore, one of the unenforceable mid-stream variety. Notwithstanding the retroactive clause pushing back the start date to a period before the agreement is offered and signed, the court held that it was given in exchange for a new job with a new company. The rationale for the ruling and the background facts are not critical for companies and employees to know. (One might reasonably ask, how different is the situation from Galioto from that where an employer inadvertently gives an employee a non-compete that had been disclosed in the application process a day late? Either is a “gotcha” situation, lacking real world significance. But no matter.) What’s more important for businesses to know is if they hire or retain employees to do work they’re already doing, they can easily render the enforceability question moot. All they need to do is to give such employees something additional of value. An example may be a $100 signing bonus. Or an extra day of paid time off. A free weekly massage or company soda pop? (The courts have not determined the floor for minimal value, but presumably a token bonus of, say, five dollars would not suffice). Most would agree that $100 bonus is cheap insurance, relative to the many tens of thousands of dollars an employer would need to pay to prosecute a non-compete lawsuit. Ironic, perhaps, because the Galioto case involved a company and employee in the insurance brokerage industry. ★