Divided Appellate Court Voids Employer’s Non-Compete Covenants Because One Employee Did Not Sign

In a decision marked not-for-publication, a Minnesota Appeals Court affirmed the trial court’s invalidation of a two-year non-competition agreement signed by a long time employee.  He was discharged 11 years after he signed.  He then went to work for a competitor of his former employer.  The majority reasoned that the non-compete lacked independent consideration since it was not executed by 100% of similarly situated employees who had been asked to sign it.

Summary of the Case 

In April 1999, Nott Company (a supplier of fluid-power components and systems) notified all outside salespeople by letter that the company would be implementing a new compensation program effective May 1, 1999.  That program, which included a two-year non-compete covenant replacing a one-year agreement, added the possibility of a bonus to the prior salary-plus-commission arrangement.  The letter directed each recipient to sign and return the covenant by April 30.  All of the outside salespeople except one executed the new, longer term agreement.  In 2010, Nott discharged Eberhardt, a signer of the two-year covenant, who went to work for a Nott competitor.  Nott sued Eberhardt and his new employer.  At trial, at the close of Nott’s case, the court entered judgment for the defendants partially on the ground that Eberhardt’s non-compete was invalid.  The judgment was affirmed on appeal. Nott Co. v. Eberhardt, Case Nos. A13-1060 and 1390 (Minn. App., 6/2/14) (Hudson, J.) (Stauber, J., dissenting).

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