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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Why Employees with Noncompetes Need Quicker Access to Courts

An employment law inequity that needs fixing

Minnesota case law on noncompetes is very well developed, with a history going back at least 50 years. Our district court judges today do an outstanding job of balancing the harm to the employee with the need to protect the employer’s legitimate business interests. Almost all practitioners in this area agree that noncompetes serve a useful function.

Yet there remains a glitch in our judicial system that places employees who are subject to noncompetes at a significant disadvantage. The typical case involves an employer seeking injunctive relief against a former employee who is alleged to be competing or soliciting customers in violation of the restrictive covenant. Within a matter of days after discovering a restrictive covenant has been violated, an employer can be in front of a judge seeking a TRO and can generally expect a decision within days after that.

But what about the employee who believes her noncompete is more restrictive than Minnesota law allows but is afraid of being sued if she takes a job that would be consistent with what she understands to be Minnesota law but violates the noncompete as written?

The problem

Consider this scenario: Employee is laid off through no fault of her own. She has an employment agreement that prohibits her from soliciting or doing business with any of her former employer’s customers. The former employer has 1,000 customers, of which employee had regular contact with 100. She has no idea who the other 900 customers are. Or say the employee is prohibited from competing at all in the five-state area and would have to move to another state to continue working in her field of experience at a commensurate salary. Employee is quite willing to stay away from her customers for the period of the restriction. However, former employer says she must comply with the restrictive covenant as written or former employer will not only seek a TRO but ask for attorneys’ fees under a fees provision in the employment agreement. On top of that, prospective employers won’t hire her because they don’t want to get sued by the former employer.

What are the employee’s options? Before I try to answer that question, let me explain what caused me to ask the question in the first place. I have practiced in this area for over 30 years, almost exclusively on the employer side for most of that time. In the last few years, I have represented as many employees as employers. Before that, I had never considered the dilemma of the employee who is willing to, maybe wants to, honor some post-employment restriction but would like to test the reasonableness of the restriction as written. The “blue pencil” doctrine arguably supports an employee’s right to test the reasonableness of a restrictive covenant and to have it narrowed if overbroad. Unfortunately, the employee does not have the equivalent of the TRO process to obtain a quick answer.

This is a real problem for employees, many of whom don’t have the financial wherewithal to risk getting sued if they take a job that would violate the restrictive covenant as written. Or the employee gets turned away by a prospective employer after that person is shown the restrictive covenant. Employers know this and use it as leverage. Not surprisingly, most employers draft restrictive covenants that are broader than what their attorney advises them is enforceable. They know they can narrow it later if necessary, but often they can force a former employee into abiding by the overly broad restrictive covenant simply because the employee doesn’t want to get sued.

Representing employees subject to noncompetes has become a kind of cause for me. The typical client earns $50,000 to $100,000 a year, not enough to fund a lawsuit. I discount my hourly rate by 25 percent and let them pay my bill in installments. Most of them understand the fairness of some kind of post-employment restriction but many of them face a significant reduction in income because they can’t afford to be sued or prospective employers won’t risk being sued.

What to do?

There are a number of non-litigation options I discuss with employee clients but, if these don’t work, the best option I am able to offer is for the employee to commence a declaratory judgment action. Unlike the TRO process, it usually takes at least weeks, and often months, to get in front of a judge and the decision may not be issued for 60-90 days after the hearing. Very few employees can wait that long. That is a glitch in the system, and a perverse one in which the only way an employee is assured of getting a quick answer to the reasonableness and enforceability of the restrictive covenant is to violate the covenant.

Employers are able to get a quick hearing and quick order because case law has long held that even the threat of a breach of a restrictive covenant can be enough to establish irreparable harm. This principle is critically important to protect employers from losing customers who would otherwise follow a salesperson who was paid by the employer to develop strong relationships with those customers. But there is no less at stake for an employee faced with a choice between a TRO motion that might leave him or her liable for both the employer’s and the employee’s own attorney’s fees, on the one hand, and waiting months for a decision on a declaratory judgment motion, on the other. For an employee to effectively have no access to the courts is a form of irreparable harm.

If employees could request an emergency hearing when they commence a declaratory judgment action, and were thereby assured of a quick decision, this glitch would be fixed. Of course, it is possible this will generate a significant increase in litigation, further clogging our courts’ already overcrowded dockets. But I think it is likely that far more of these types of cases would settle without the need for litigation. The playing field would be much closer to level, forcing employers to more carefully consider whether the restrictive covenant as written is likely to be enforced or whether the employer should discuss a narrowing of the covenant with the employee.

Even if the employee commences a declaratory judgment action, there is good reason to believe such cases will settle early. Judges often require the parties to discuss settlement before arguing a TRO motion, which often results in a settlement. If judges follow the same practice in declaratory judgment actions, the results should be the same.

Those of you who represent employers are probably ready to set a match to this article, but before doing so, did you know that a 2013 bill authored by Minnesota DFL Reps. Joe Atkins and Alice Hausman would have eliminated noncompetes except in connection with the sale of a business or an ownership interest in a business? Some other states have passed similar legislation. Although the bill did not pass out of committee, it may surface again. Passage of such legislation would do serious damage to businesses whose lifeblood is customer relationships. That is worth considering before dismissing the idea of employees gaining the same access to the courts as employers have.

At a minimum, I hope this article starts a conversation among judges and practitioners in this area about how to fix the glitch. At the risk of sounding presumptuous, I will add the hope that judges will do their best to schedule motions for declaratory judgment in this context as early on their calendar as possible.

A recent district court decision that I’ve posted online (www.siegelbrill.com/districtcourtdecision) contains a real-life example of the problem this article addresses. The earliest the court could schedule a hearing was two months from the date a hearing was requested. The employee did not challenge the scope or enforceability of the noncompete but simply sought a declaration as to how the noncompete applied to his specific situation. The court dismissed the declaratory judgment action and awarded attorneys’ fees and costs in favor of the former employer. If this decision is representative of how judges view declaratory judgment actions in this context, then such an action will be eliminated as an option and employees will have no access to the courts.

CHRIS PENWELL is a shareholder with Siegel Brill PA. A substantial part of his practice over the past 32 years has been drafting, implementing, and enforcing noncompetes on behalf of closely held businesses. In the past few years he has also advised and represented employees in this area.

2 Comments

  1. I understand the point of view expressed in this article, but the author fails to mention the fact that employees can (and often do) seek a TRO against enforcement of a noncompete when they commence a declaratory judgment action in order to determine enforceability and scope of their restrictive covenants. Although I’ve not had occasion to commence such an action recently, over the past 43 years I have been involved in dozens of such TROs. They are precisely the remedy the author seems to be advocating, so his failure to mention the availability of a TRO motion in such situation is a glaring omission.


  2. Joel O'Malley
    Jul 05, 2017

    The author raises interesting points, but I agree with Mr. Pentelovitch’s comment that a TRO is potentially an available remedy for the employee. On the other hand, an employee temporarily being unemployed while a declaratory judgment action is pending seems hardly the immediate and irreparable harm needed to support issuance of a TRO. The employee would need to tie the TRO to some additional harm similar to what employers argue, such as the loss of client goodwill belonging to the employee from being unable to work while the former employer cements those client relationships for itself.

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