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Under longstanding Minnesota’s law, existing employees of any business have a duty of loyalty which precludes, among other things, diverting business to their employer’s competitor. Does this, in the abstract, preclude “moonlighting” in the face of the “boilerplate” language in most employment agreements requiring the employee to devote his/her full time efforts to working for said employer? The defendant employee in NICE Sys., Inc. v. Becquer, Civil No. 16-1759 (DWF/DTS) (D. Minn. Nov. 22, 2017) learned that the answer is probably no.

Unlike non-competes, which are purely a matter of contract, courts have established that the duty of loyalty arises under Minnesota and therefore applies to all employees in all circumstances.  In the NICE case, a high ranking sales employee signed a contract of employment at the onset of his employment with Plaintiff that provided that he “devote [his] full business time and energies to the business and affairs of the Company.”  Such full-time-and-effort clauses are standard and found in nearly every contract of employment.  Disputes under them arise very infrequently.  (A survey of reported cases finds a mere handful).

In the Bequer case, defendant employee took a full time position with another company in another state as an account representative while working as a full time employee of his employer NICE Systems, Inc. in Minnesota.  He had taken that position following a change in his job from a “healthcare vertical”, with the title Strategic Account Executive, to “bank vertical”, with the title “Global Account Executive.  In both roles he supervised junior sales personnel.  Although he only had that dual employment for a number of months, and then quit the other job, he was fired by NICE when they caught wind of his moonlighting.  (Bequer didn’t help his cause by lying about it, when confronted).  In the subsequent lawsuit, the company took the position that Bequer’s transfer was a lateral move, permitted under his existing employment agreement.  Bequer, by contrast, argued it was a new job, therefore wiping out the old contract he had signed, including its anti-moonlighting clause.

In Bequer’s motion for summary judgment, seeking dismissal of the claims, the court ruled that disputed fact issues preclude entering judgment for Bequer.  Whether the job was a new one or a permitted lateral move required a trial.  The court also ruled that the common law duty of loyalty is not subsumed by the breach of contract claim, because it is potentially broader in scope and thus falls outside the economic loss rule, which provides that parties are limited to contract remedies where a contractual duty is co-extensive with a common law tort duty.

What’s not clear from the reported decision is whether plaintiff in NICE has a viable claim for damages.  That is, can it show that it suffered financially, in any provable way?  There appears to be no argument that Bequer diverted business or directed business opportunities to the California company.  It’s not even clear from the reported decision that the other company was a competitor; the failure in the case to say that it was certainly suggests it wasn’t.  Which if true, makes one wonder why a business would sue a former employee caught moonlighting, not being content to just fire him (which was certainly within its right).  Was the plaintiff just acting out of vengeance, in disregard of the economics of litigation?  Was it trying to make an example of Bequer?  In any event, the case provides a cautionary note for employees who might engage in moonlighting without first obtaining their employer’s consent.  And it provides a valuable lesson to employers.  Make sure your employment agreements, clearly and unequivocally cover any and all changes in the position to avoid them being nullified by a job transfer.  Or have the employee sign a new agreement upon changing positions.