While treats are in abundance on Halloween, a Minnesota employer recently received a trick when a federal court denied its temporary restraining order application. A Minnesota federal court held that an ex-employer’s apprehension that a former employee violated or would violate a non-compete and confidentiality agreement was entirely speculative and, thus, did not warrant a TRO. Sempris, LLC v. Watson, Civil Ac. No. 12-2454 ADM/JJG (D. Minn., Oct. 22, 2012) The court found that there was insufficient evidence of damages or harm to warrant injunctive relief.
In 2009, Watson was hired to work out of his Texas home for Provell which was a Minnesota company that developed, sold and managed membership reward clubs. His title was Vice President for Business Development, and his employment agreement included non-compete and confidentiality provisions. The non-compete agreement prohibited him from directly or indirectly soliciting any current or potential Provell client for one year after termination of his employment.
In January 2011, another Minnesota company, Sempris, purchased Provell’s assets. Sempris develops membership and customer loyalty rewards programs for businesses. Watson did not sign a new employment agreement, but Sempris claimed that it assumed Provell’s rights under the prior agreement. Sempris made no significant changes in the terms of Watson’s employment until October 2011 when the maximum amount he could earn as a commission was capped at 40% of his base salary (previously there had been no cap). He resigned in September 2012 and accepted a position with a new employer, Reunion, based in Ft. Lauderdale, Florida. Sempris sued him, alleging that Reunion was a competitor and that Watson was violating his non-compete and confidentiality commitments. He denied any such violation and asserted that the covenant against competing with Sempris was unenforceable.
In support of a motion for a TRO, Sempris submitted no evidence that any of its current or potential clients was lost to Reunion. No proof was offered of an identity between Reunion’s products or sales methods and those of Sempris. The two companies never competed directly for the same client. In fact, neither company was aware of the other until Watson transitioned.
The court said that even if Watson did work for a competitor, Watson was not shown to have been in contact with any current or potential Sempris client, and his mere possession of trade secrets did not warrant injunctive relief. Further, Minnesota law disfavors enforcement of a non-competition agreement. Under the circumstances, the harm that would be caused to Watson by enjoining him from gainful employment for one year outweighed the risk to Sempris of denying the TRO. The court did not resolve the dispute concerning validity of the non-compete covenant.
The target of Sempris’ litigation was a single former employee whose conduct apparently had not injured his ex-employer. Of course, Sempris’ motive in filing the case may have been primarily to discourage other employees from following or emulating Watson. Significantly, perhaps, Reunion was not named as an additional defendant. Or, Sempris may have merely wanted to warn Watson that his activities were being monitored, and to an extent the company succeeded. The court’s opinion concluded by cautioning him that “he remains bound by the terms of his employment contract” and “may ultimately be found to be in breach of his Non-Compete Agreement; and, if so, Watson will be responsible for damages to Sempris.”