Minnesota Court of Appeals Finds Employer's Written Nonsolicitation Agreement Unenforceable for Failing to Satisfy Minnesota's Statute of Frauds

July 2015
By: James B. Sherman, Esq.

Every state has a "statute of frauds" requiring that certain contracts be stated in writing to be enforceable. However, I often hear business people say, incorrectly, that noncompetition agreements and other restrictive covenants are "not worth the paper they are written on." In truth, these agreements are frequently upheld in court so long as they are carefully drafted. However, a recent decision from the Minnesota Court of Appeals illustrates the importance of dotting I's and crossing T's when it comes to drafting restrictive employment agreements. Specifically, the court found that a written nonsolicitation agreement nevertheless failed to comply with Minnesota's statute of frauds. The result was that the agreement was deemed unenforceable.

The case involved an employee of roughly three years who was asked to sign a “Nonsoliciation and Confidential Information Agreement” in connection with the employer’s installation of a new computer system that gave employees access to detailed customer information. The agreement applied both during employment and for a period of two years after employment ended. Due to its duration the agreement fell under Minnesota’s statute of frauds, which applies to any contract which by its terms cannot be performed within one year from its making. But Minnesota’s statute of frauds (Minn. Stat. § 513.01) not only requires that such an agreement be in writing, as the appellate court noted it specifically requires that the written agreement “express the consideration” given in exchange for the contract. In this particular case, because the employer’s nonsolicitation agreement did not specify, in writing, what consideration (i.e. thing of value) was being given to the employee in exchange for her promise not to solicit customers, the agreement failed to satisfy Minnesota’s statue of frauds and, therefore, was unenforceable. 

The employer in this case tried to argue that its consideration to support the nonsolicitation agreement was giving the employee access to its customer information, which would not have been done had the employee not signed the agreement promising not to solicit customers. The employer's failure to include this, in writing, in the nonsolicitation agreement itself proved fatal because it did not comply with Minnesota’s very explicit statute of frauds. Had this detail not been overlooked, perhaps the outcome of this case could have been different.

Questions? Attorney James Sherman of our Minneapolis office has extensive experience drafting, enforcing, and defending against enforcement of noncompetition, nonsolicitation, trade secret and other restrictive employment agreements. He may be reached by email at jasherman@wesselssherman.com or call (952) 746-1700.

Jim Sherman Recognized for Excellence in the Legal Profession

Wessels Sherman President and CEO, James Sherman, was recently selected to the 2015 Minnesota Super Lawyers list.  No more than 5 percent of the lawyers in Minnesota are selected by Super Lawyers to receive this prestigious recognition. 

“I’ve been told that being named a Super Lawyer in Minnesota is rather remarkable in my case due to the fact that I do not practice exclusively in Minnesota but am licensed to practice and also represent clients in Wisconsin and Illinois, in addition to many other states by special permission,” says Mr. Sherman.  “I guess I made the grade in spite of my regional law practice where I spread my time between helping employers both in and outside of my home state of Minnesota.” 

Super Lawyers, a Thompson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement.  Watch for Jim’s listing when it appears in the August 2015 Minnesota Super Lawyers Magazine, Mpls. St. Paul Magazine, and Twin Cities Business Magazine!

Minnesota Court of Appeals Refuses to Enforce Employer’s Nonsolicitation Agreement Against Former Employee Who Resigned and Began Soliciting Customers for a Competitor

July 2015
By: James B. Sherman, Esq.

I often hear business people say, incorrectly, that noncompetition agreements and other restrictive covenants are "not worth the paper they are written on." In truth, these agreements are frequently upheld in court so long as they are carefully drafted. However, it certainly is accurate to say that noncompete, nonsolicitation, confidentiality and similar agreements between employers and their employees often receive a great deal of scrutiny in court. A recent decision from the Minnesota Court of Appeals illustrates this point and the importance of dotting I's and crossing T's when it comes to restrictive employment agreements.

The case involved an employee of roughly three years who was asked to sign a “Nonsoliciation and Confidential Information Agreement” in connection with the employer’s installation of a new computer system that gave employees access to detailed customer information. The agreement applied both during employment and for a period of two years after employment ended. Due to its duration the agreement fell under Minnesota’s statute of frauds, which applies to any contract which by its terms cannot be performed within one year from its making. But Minnesota’s statute of frauds (Minn. Stat. § 513.01) not only requires that such an agreement be in writing, as the appellate court noted it specifically requires that the written agreement “express the consideration” given in exchange for the contract. In this particular case, because the employer’s nonsolicitation agreement did not specify, in writing, what consideration (i.e. thing of value) was being given to the employee in exchange for her promise not to solicit customers, the agreement failed to satisfy Minnesota’s statue of frauds and, therefore, was unenforceable.

The employer in this case tried to argue that its consideration to support the nonsolicitation agreement was giving the employee access to its customer information, which would not have been done had the employee not signed the agreement promising not to solicit customers. The employer's failure to include this, in writing, in the nonsolicitation agreement itself proved fatal because it did not comply with Minnesota’s very explicit statute of frauds. Had this detail not been overlooked, perhaps the outcome of this case could have been different.

Questions? Attorney James Sherman of our Minneapolis office has extensive experience drafting, enforcing, and defending against enforcement of noncompetition, nonsolicitation, trade secret and other restrictive employment agreements. He may be reached by email at jasherman@wesselssherman.com or call (952) 746-1700.

Unprecedented Winds of Change at U.S. Department of Labor Aim to Require Overtime Pay for Millions by “Reclassifying” Workers - from Exempt to Non-exempt and from Independent Contractors to Employees

July 2015

By: James B. Sherman, Esq.

Within the past month, the U.S. Department of Labor (DOL) has taken two separate actions to greatly expand the reach of the Fair Labor Standards Act (FLSA) to require overtime pay for millions more workers.  The first action taken on June 30th, was the DOL's release of proposed regulations aimed at doubling the minimum salary needed to meet the so-called white collar exemption to the FLSA's minimum wage and overtime requirements.  If the proposal becomes final it will result in the reclassification of an estimated 4.6 million workers from exempt to non-exempt status, entitling them to overtime pay.  The DOL's second action was taken on July 15th, when the Wage and Hour Division of the DOL released an "Administrator's Interpretation" addressing what was termed the "misclassification" of workers as independent contractors rather than employees.  This interpretation may result in many more workers who presently are treated as independent contractors, being reclassified as employees for purposes of the FLSA and, thus, entitled to overtime pay.

While many employers have heard about the DOL’s proposed new minimum salary for exempt employees, few have heard about its position on “misclassification” of independent contractors.  In either case, employers should brace for the impending changes that these new measures will soon bring.  In addition to keeping records on millions more workers who are expected to be entitled to overtime pay, all of those reclassified individuals represent a new pool of potential plaintiffs to join the ever growing surge of wage and hour lawsuits.    

1.       The Proposed New White Collar Exemption Regulations

This is only the second time in more than 50 years that the DOL has proposed revisions to its regulations implementing the exemption from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA) for executive, administrative, professional, outside sales, and computer employees. The nearly 300 pages of bureaucratic data and legalese of the proposal can be summarized as follows:

• More than doubling the minimum salary for the white collar exemption, from $455/week ($23,660 annually) to a figure equivalent to the 40^th percentile of earnings for all full-time salaried workers.  The current estimate for the first quarter of 2016 when the proposed rule may go into effect, is a new minimum salary requirement of approximately $970/week ($50,440 annually).

• Increasing the “highly compensated employee” definition from $100,000 to $122,148 annually (equal to the 90th percentile of earnings for full-time salaried workers);

• Automatic annual updates to these foregoing minimum salaries based on a fixed percentile of earnings or cost of living indicators; and

• While not yet making specific proposals to modify the “duties test” for white collar exemptions, the DOL is seeking further comments from the public over its concern that some exempt employees may be performing a “disproportionate amount of non-exempt work.”

The DOL is accepting comments from the public on its proposed rule before it issues the final version. Timely comments must be recovered by the Department no later than August 29, 2015. To learn more about these proposed regulations and how they may impact whether employees currently regarded as exempt, may soon be non-exempt and entitled to overtime pay, attend our TIMELY WEBINAR (see below to register).

2.       The Independent Contractor Administrative Interpretation

According to this new interpretation individuals previously thought to be independent contractors rather than employees, will now be assessed under a new standard.  According to the DOL’s new interpretation, the key question in whether a worker is an independent contractor or an employee for purposes of the FLSA is whether the worker is economically dependent on the employer or in business for him or herself. The interpretation goes on to list and describe the following six factors to be considered in determining whether a worker is an employee or independent contractor (with examples for each): (1) Is the work an integral part of the employer’s business?  (2) Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? (3) How does the worker’s relative investment compare to the employer’s investment?  (4) Does the work performed require special skill and initiative?  (5) Is the relationship between the worker and the employer permanent or indefinite?  (6) What is the nature and degree of the employer’s control?  No single factor is determinative, and the interpretation states that these factors should all be interpreted within the broader concept of “economic dependence.” 

The DOL’s new interpretation openly declares that under the foregoing analysis most workers will be considered employees rather than independent contractors.  The close timing of these two measures highlights the DOL’s intention to expand the FLSA’s minimum wage and overtime requirements to millions more workers.  Employers should act now to prepare for the potential of having numerous exempt employees and/or independent contractors who soon may be eligible for overtime pay and all the many related concerns of tracking time worked, lunch breaks, work from home, etc. 

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To prepare for these sweeping changes or for assistance in determining whether your workers are properly classified as employees vs. independent contractors, or exempt vs. non-exempt, contact attorney James Sherman in our Minneapolis office, at (952) 746-1700, or email him at jasherman@wesselssherman.com.

Pro-Union NLRB Agenda: Stay Up to Date!!

July, 2015
By Richard H. Wessels, Esq.

Employers need to stay up-to-date on the NLRB’s pro-union agenda. Keep in mind –even though you are non-union and an unlikely union target, there still is a need to stay alert. A large percentage of NLRB cases these days involve “protected concerted activity”. In other words, there is no union involved at all. The NLRB is aggressive in asserting itself in non-union situations and stretching the law to create coverage for non-union employees! 
 
Here is a laundry list of areas where the NLRB is making it easier for unions who want to organize and for non-union employees who wish to challenge their employer: 

• Quickie elections – much shorter time frames.
• Specialty Healthcare types of cases – micro units which give a union almost any voting unit they want.
• E-mail policies – permits use of company e-mail for discussion of union activity.
• Social media policies – vulgar comments are protected activity!
• Employee handbooks – 30 page NLRB General Counsel memo perhaps more confusing than enlightening. The memorandum is, however, useful and must reading, if for no more than the modified rules in the Wendy’s settlement which the NLRB has ok’d.
• Rats, banners and street theater in the construction industry – tougher to get 8(b)(4) violations.
• Post-contract expiration obligations of the employer – reversal of long standing rule that check off does not survive contract expiration.
• Tougher independent contractor rules – easier for union to get independent contractors eligible to vote in union elections.
• Confidentiality agreements – can have a chilling effect on organizing and thus a ULP.
• Non-union arbitration agreements – NLRB says unlawful because it restricts collective action.
• Insubordinate conduct – previously unprotected activity such as profanity, disparagement and vulgarity is now protected.
• Joint employers – franchiser-franchisee relationship becomes joint-employer.
• Confidentiality of witness statements – casts doubt on ability to keep statements confidential in employment-related investigations.
• Wearing of buttons and stickers – employer attempts to control this are regularly struck down by the NLRB.
• Staffing company and host company employees in the same appropriate unit –NLRB has issued a notice to the public inviting briefs on a pending case. This is a clear signal that the NLRB is about to reverse existing case law that forbids inclusion in the same unit without the consent of both employers.

These are all complicated and fact-sensitive areas. As but one example, you might want to consider a disclaimer in your employee handbook to undercut a strained interpretation that it violates Section 7 rights. If you want to talk about any of this, contact me at (630) 377-1554 or by email at riwessels@wesselssherman.com.

Illinois Employers Beware! If You have California Employees, New Law Says Employers Must Provide Paid Sick Leave!

July, 2015
By: Anthony J. Caruso, Jr., Esq.

Illinois employers are not required by federal or Illinois state law to provide paid sick leave to their employees in Illinois. However, if your Company has California employees, a new California state law, effective July 1, 2015, known as the Healthy Workplace/Healthy Families Act of 2014, requires your company to provide paid sick leave.

What is the California Employee Entitled to?

• An employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment is entitled to paid sick leave.
• Paid sick leave accrues at the rate of one hour per every 30 hours worked, paid at the employee’s regular wage rate. Accrual shall begin on the first day of employment or July 1, 2015, whichever is later.
• Accrued paid sick leave shall carry over to the following year of employment and may be capped at 48 hours or six days. However, subject to specified conditions, if an employer has a paid sick leave, paid leave or paid time off (PTO) that provides no less than 24 hours of three days of paid leave or paid time off, no accrual or carry over is required if the full amount of leave is received at the beginning of each year in accordance with the policy.

How can the California Employee Use Paid Sick Leave?

• An employee may use accrued paid sick days beginning on the 90th day of employment.
• An employer shall provide paid sick days upon the oral or written required of an employee for themselves or a family member for the diagnosis, care or treatment of an existing health condition or preventive care, or specified purposes for an employee who is a victim of domestic violence, sexual assault, or stalking.
• An employer may limit the use of paid sick days to 24 hours or three days in each year of employment.

As such, the California law requires the law to be posted along with a written notice to new employees.

Employers should note that the State of Illinois has considered similar legislation which would require Illinois employers to provide paid sick leave. It may only be a matter of time before the State of Illinois enacts such a law!!

Questions? Contact Attorney Anthony J. Caruso Jr., of Wessels Sherman’s St. Charles office at (630) 377-1554 or e-mail ancaruso@wesselssherman.com.