Trevor is an associate in Dorsey’s Labor & Employment group. His practice includes providing litigation support on employment issues that arise under state and federal law, as well as advice and research for clients with employment-related legal questions.
Today’s workforce is more mobile than in past generations. Long gone are the days when an employee started and ended a career at the same company. Knowing how to protect your company’s confidential information when a trusted employee leaves can have a lasting impact on your ability to compete. So, what can you do when a former employee goes to work for a competitor? Is having an irreparable injury provision in your non-compete agreement enough to obtain a court order prohibiting that individual from working at his/her new job?
In Minnesota, courts want to see more than just words in a contract before they will grant injunctive relief against a former employee.
This week, the Supreme Court of Minnesota issued a decision in St. Jude Medical, Inc. v. Carter. The case arose after Heath Carter left his employer to work for a competitor. The employer filed suit against Mr. Carter and the competitor, alleging violations of Mr. Carter’s non-compete agreement. The employer did not seek money damages but asked the court for injunctive relief; specifically, an order enforcing the terms of the non-compete agreement and prohibiting Mr. Carter from working for a competitor in his then-current position. The case went to a jury, which ultimately found that Mr. Carter had breached his non-compete agreement. But the court refused to enter an injunction, finding that the employer failed to establish that it had been harmed.
The case made its way to the Supreme Court, where the question became what to do about specific language in the non-compete agreement that addressed the issue of whether and how the former employer was harmed. The language at issue is commonly included in many non-compete agreements:
In the event Employee breaches the covenants contained in this Agreement, Employee recognizes that irreparable injury will result . . . that [the Employer’s] remedy at law for damages will be inadequate, and that [the Employer] shall be entitled to an injunction to restrain the continuing breach by Employee.
At first glance, the provision appeared to resolve the issue of whether the employer suffered irreparable harm—Mr. Carter agreed that it had. But the Supreme Court disagreed. The court noted that “[a] private agreement is just that: private,” and concluded that such contractual language does not, by itself, entitle an employer to an injunction after proving the breach of a non-compete. The court emphasized that regardless of what the parties agree to, the burden will always fall on the employer to show that: (1) legal remedies (i.e., money damages) are inadequate; and (2) “great and irreparable injury” will result without an injunction. Because the employer did not offer proof of an irreparable injury, the court held that the employer was not entitled to an injunction.
So what now? Are provisions like those quoted above meaningless? Should employers scramble to re-write their non-compete agreements? The short answer is “probably not.”
Minnesota aligns with a number of states in which mere contractual language about irreparable harm is not enough to win injunctive relief. Nevertheless, these provisions are still worth including in non-compete agreements because courts can consider them as one of many factors that bear on whether an employer has suffered irreparable harm. Other factors will usually be more persuasive, often including evidence of some or all of the following:
The departing employee took confidential information when he or she left (e.g., client lists, marketing plans, and pricing information).
The departing employee disclosed confidential information to the competitor or put confidential information to use in the new job.
The departing employee solicited business from former clients or customers and used confidential information to solicit such business.
The former employer lost client or customer goodwill because of the departing employee’s breach of the non-compete agreement.
Ultimately, Carter serves as a useful reminder to employers on both sides of an employee’s job change. Former employers should carefully consider how they have been harmed by an employee’s departure (and what evidence they anticipate being able to present as proof of that harm). Hiring employers should understand and reinforce to their new employees the importance of complying with prior non-compete agreements. And for employers on both sides, consulting with experienced employment attorneys even before these types of cases go to litigation can be the key to a successful outcome.
A bartender is told by his employer, in violation of state law, that he must share tips with other employees. He refuses to comply and is fired. The state law in question says he can sue for being required to share tips, but doesn’t say anything about suing because he was fired. Does the law effectively provide a “wrongful discharge” claim for the bartender, even though no such claim is expressly written into the statute and despite Minnesota’s strong adherence to the rule of at-will employment? The answer, provided in the recent Minnesota Supreme Court decision in Burt v. Rackner, Inc., 2017 Minn. LEXIS 629 (Oct. 11, 2017), comes as something of a surprise. Its broader implications for the at-will rule, however, remain to be seen.
At-will employment is so firmly established in Minnesota law that it seldom receives a second thought. The rule in Minnesota, as in the overwhelming majority of states, is that employment relationships are terminable by either the employee or the employer, at any time and without advance notice, and for any reason or for no reason at all (just not for an unlawful reason). Put another way, discharging an employee is actionable only if it implicates an exception to the general at-will rule.
For the most part, the exceptions are based either on contract or statute. Contractual exceptions include individual employment contracts, collective bargaining agreements in unionized workplaces, and even employment handbooks or workplace policies (although careful drafting normally provides that handbooks and policies do not abrogate the at-will rule). Statutory exceptions include discrimination laws, “whistleblower” acts, and other laws defining employee “protected conduct.” If the conduct is protected by statute, then the law will typically state that the employee can sue if he or she is fired for engaging in such conduct. Further, some states recognize public policy exceptions to the at-will employment doctrine. But the bottom line is that at-will employment remains the norm.
That norm, however, may be subtly changing in Minnesota. In Burt, a divided Minnesota Supreme Court held that the Minnesota Fair Labor Standards Act (“MFLSA”), Minn. Stat. §§ 171.21-.35, allows employees to sue for wrongful discharge when they refuse to share tips, even though the statute says nothing explicitly authorizing such a claim. The case may be viewed as the only logical way to enforce the statutory requirement that employers in service industries or with tip-generating businesses cannot require employees to share tips with each other (although employees are free to do so voluntarily). Yet the underlying rationale for the Court’s decision could have significant effects on the at-will employment doctrine in Minnesota.
The plaintiff in Burt worked as a bartender, earning tips in addition to his regular wage. At some point, his employer allegedly told him “that he needed to give more of his tips to the bussers, and that there would be consequences if that did not happen.” Nevertheless, the plaintiff refused to share his tips. A few months later, he was told that his employment “was being terminated because [he] was not properly sharing his tips with other staff.” Unable to find alternative employment, the plaintiff sued for wrongful termination. The District Court dismissed his case, but the Court of Appeals reversed.
In a 5-2 opinion, the Minnesota Supreme Court held that through the language of the MFLSA, the state legislature had expressly created a cause of action for employees who are terminated for refusing to share tips. Specifically, the Court relied on two provisions to find an express cause of action:
Under Minn. Stat. § 177.24, subd. 3,
No employer may require an employee to contribute or share a gratuity received by the employee with the employer or other employees or to contribute any or all of the gratuity to a fund or pool operated for the benefit of the employer or employees. This section does not prevent an employee from voluntarily sharing gratuities with other employees. The agreement to share gratuities must be made by the employees without employer coercion or participation . . . .
And under Minn. Stat. § 177.27, subd. 8,
An employee may bring a civil action seeking redress for a violation or violations of sections 177.21 to 177.44 directly to district court.
According to the Court, because § 177.24 prohibits employers from requiring employees to share tips, it necessarily also prohibits employers from terminating employees who refuse to do so. The Court concluded that the mere threat of termination qualifies as “requiring” an employee to take an action. And given that § 177.27 authorizes civil actions to redress any prohibited conduct under the MFLSA, the Court held that the plaintiff had a viable claim against his employer for wrongful discharge. But even if the Court’s logic is compelling (the statute would provide little protection if any employee could be fired for refusing to share tips), it goes beyond the exact statutory wording, which does not mention termination or any action for wrongful discharge.
Indeed, Chief Justice Gildea authored a dissenting opinion, taking aim at the majority’s interpretation of the relevant statutes. The dissent emphasized the majority’s apparent disregard for longstanding precedent allowing the legislature to abrogate the at-will employment doctrine only with express wording or necessary implication. This critique was particularly apt because other provisions in the MFLSA contain express language authorizing causes of action for wrongful discharge—language that Chief Justice Gildea noted was absent from §§ 177.24 and 177.27. If the Legislature had wanted to create a wrongful discharge remedy for violations of the tip-sharing law, it could have used similar language, but did not do so.
So what are employers to take from Burt?
For starters, they cannot require tip-sharing, nor can they terminate employees who refuse to share tips. The more difficult issue is how the decision could erode at-will employment in Minnesota generally. Although the sky is not yet falling, Burt should give employers pause. It reflects the willingness of a majority of the Supreme Court to recognize a wrongful discharge remedy (at least where there is a compelling logic for such a remedy) even if it is not explicitly described in the statute at issue. As Chief Justice Gildea wrote in dissent, Burt opens the door for employees to allege claims for wrongful discharge just by invoking “any MFLSA provision that imposes a requirement on an employer—and indeed, virtually any statutory provision that imposes a requirement on an employer.”
Now, more than ever, it is critical that employers stay apprised of the legal requirements imposed on them by state and federal laws. It is equally critical that both in-house and outside employment counsel keep an eye on how Minnesota courts interpret and apply Burt in the years to come.
EEOC charges are a fact of life for employers. Even with comprehensive equal employment policies, top-notch human resources personnel, and a great workplace culture, many employers will at some point encounter a charge of discrimination or retaliation. While any charge is an unwelcome event, the stakes increase even further if the EEOC decides to take the employer to court. The prospect of litigating against the EEOC can be daunting. So employers tend to breathe a sigh of relief when they learn that the EEOC has issued a right-to-sue letter in response to a pending charge, because this typically signals the end of the EEOC’s investigation (and involvement in the matter). Although the charging party may still sue, after the EEOC issues a right-to-sue letter, is it safe for employers to assume the EEOC is safely in the rear view mirror?
On August 15, 2017, the United States Court of Appeals for the Seventh Circuit decided EEOC v. Union Pacific Railroad Company, adding to current uncertainty about when the EEOC’s authority to act comes to an end. Prior court of appeals decisions had split over the question of whether the EEOC can continue investigating after issuing a right-to-sue letter. The Seventh Circuit sided with the Ninth Circuit in holding that the EEOC can continue to investigate, and go on to file its own enforcement action, even after issuing a right-to-sue letter. This conflicts with an older decision from the Fifth Circuit—which held that such action exceeded the agency’s authority. As with any circuit split, there is a chance the Supreme Court might weigh in.
The underlying facts are straightforward, but the procedural history is not. In 2011, two African-American men began entry-level jobs with Union Pacific. They unsuccessfully applied for promotions and were eventually terminated in October 2011, when their positions were eliminated. Both men filed EEOC charges alleging discrimination and retaliation (they had filed earlier charges after being denied the promotions). Union Pacific grudgingly responded to the charges and to the EEOC’s first request for information, requiring an EEOC subpoena and enforcement action. The EEOC eventually issued a right-to-sue letter pursuant to 42 U.S.C. § 2000e-(5)(f)(1), which requires the agency to issue notice of a charging party’s right to sue within 180 days after receiving a charge. The charging parties sued in federal court. But they ultimately lost on summary judgment, and the Seventh Circuit affirmed. Case closed, right?
Not so fast. While the lawsuit was pending in the district court, the EEOC issued a second request for information. When Union Pacific refused to respond, the EEOC filed suit to enforce its subpoena. Union Pacific moved to dismiss, arguing that the EEOC lacked authority to continue investigating given that it had already issued a right-to-sue letter. The district court denied the motion, and Union Pacific appealed.
The Court of Appeals framed the legal question as “whether the EEOC is authorized by statute to continue investigating an employer by seeking enforcement of its subpoena after issuing a notice of right-to-sue to the charging individuals and the dismissal of the individuals’ subsequent civil lawsuit on the merits.” The answer, at least in the Seventh Circuit, is “yes.”
The court noted that the EEOC’s governing statutes give it the authority to request information or records only in the context of investigating a charge. In other words, the EEOC cannot simply call up employers and ask to sift through their personnel files. Although the EEOC must issue a right-to-sue letter within 180 days of receiving a charge, the governing statutes are silent as to what effect such a letter has on the agency’s investigative powers.
With no clear-cut statutory answer, the Seventh Circuit looked to analogous cases, including the Supreme Court’s decision in EEOC v. Waffle House, Inc., 534 U.S. 279 (2002). In Waffle House, the Supreme Court held that a charging party’s agreement to arbitrate the claims giving rise to a charge did not prevent the EEOC from pursuing victim-specific judicial relief on behalf of the charging party. In other words, the EEOC could go to court even though the employee could only go to arbitration. Following Waffle House, the Seventh Circuit itself addressed a similar issue, holding that even when a charging party withdraws a charge, the EEOC can continue its investigation. SeeWatkins Motor Lines, Inc. 553 F.3d 593 (7th Cir. 2009). These decisions, buttressed by the EEOC’s own regulations, see 29 C.F.R. § 1601.28(a)(3), led the Seventh Circuit to conclude that the agency can continue investigating employers and subpoenaing their records even after issuing a right-to-sue letter.
But what about the fact that the charging parties’ underlying case had been decided on the merits? Union Pacific argued that this resolution terminated the EEOC’s authority to investigate. Once again, the Seventh Circuit disagreed. According to the court, the EEOC’s authority does not derive from a charging party’s claims; a valid charge irrevocably triggers the agency’s investigative and enforcement powers. Tethering the EEOC to the private interests of the parties would undermine the agency’s mission to serve the public interest. In short, the court held that the EEOC gets to decide when it is done investigating, not the parties.
This decision has at least two important implications for employers. First, EEOC charges are serious matters with potentially significant consequences. Whether employers respond to charges themselves or engage outside counsel, they should ensure that their submissions to the agency are comprehensive and persuasive. The same goes for responses to requests for information. In 2016, the EEOC issued its first-ever nationwide procedures on how to effectively respond to charges, outlining the elements that the agency considers most important. See U. S. Equal Empt. Opportunity Comm’n, Effective Position Statements. Employers are well advised to familiarize themselves with these expectations to achieve the best possible result at the agency level.
Second, employers should consider pursuing a “no probable cause” finding, even after the EEOC issues a right-to-sue letter. The agency rarely pursues an investigation after issuing a right-to-sue letter, but Union Pacific proves that—at least for now—it can still happen. Employers and their outside counsel may want to request findings of no probable cause as a matter of course for every EEOC charge, even after the agency issues a notice of right-to-sue.
Given the disparate views among the circuit courts regarding the scope of the EEOC’s authority, employers should stay tuned for future developments in this key area. Employers should also be aware of how courts view this issue in their jurisdictions to ensure they understand the potential consequences after a right-to-sue notice issues. Finally, employers should consider seeking legal guidance when responding to any agency charge—given the high stakes involved.
Dorsey is a business law firm with more than 550 attorneys across the United States, Canada, Europe and Asia. Our lawyers regularly handle every sort of employment matter, litigated and non-litigated. We have extensive, successful trial experience (including class and collective actions), as well as an outstanding record for obtaining summary judgments. Dorsey also has broad experience in advising, counseling, compliance and development, policy handbook review, training and other measures that can greatly reduce the likelihood of litigation or governmental enforcement actions.