Davies & Davies Agency, Inc. v. Davies
1980 Minn. LEXIS 1609, 298 N.W.2d 127 (1980)
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Rule of Law:
A noncompetition agreement entered into after employment has commenced is supported by adequate consideration and is enforceable if the employee subsequently receives substantial economic and professional benefits—such as continued long-term employment, training, and promotions—that would not have been available had the employee not signed the agreement.
Facts:
- In June 1967, Richard Davies began working for Davies & Davies Agency, Inc., an insurance agency owned by his father, Everett Davies.
- Approximately four months after starting, on October 24, 1967, Richard was presented with and signed a noncompetition agreement.
- The agreement prohibited Richard, upon termination, from engaging in the insurance business for five years within a 50-mile radius of Minneapolis, St. Paul, or Duluth.
- Everett Davies stated that Richard would not have received support for insurance licensing or been allowed to advance in the company if he had not signed the agreement.
- Over the next ten years, Richard received significant training in the specialized area of probate and court bonds, eventually taking charge of the agency's bond business and becoming the exclusive contact for many of its clients.
- Another son of Everett's, John, refused to sign a similar agreement and was limited to a clerical position during his time at the agency.
- After years of increasing conflict with his father over business operations, Richard announced his resignation in early January 1978 and left his position on January 15, 1978.
- Following his departure, Richard contacted many of his former attorney clients but did not accept employment with any competing insurance agency.
Procedural Posture:
- Davies & Davies Agency, Inc. sued its former employee, Richard Davies, in Hennepin County District Court (the trial court) for breach of a noncompetition agreement.
- The trial court, sitting without a jury, held that the noncompetition agreement was validly executed.
- The trial court also found the agreement's terms were unreasonable and overbroad, modifying its duration from five years to one year and its geographic scope to Hennepin County.
- The trial court ruled that neither party was entitled to damages, finding Richard Davies had not solicited business in breach of the modified agreement.
- Davies & Davies Agency, Inc. appealed the judgment to the Minnesota Supreme Court.
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Issue:
Is a noncompetition agreement entered into after an employment relationship has already begun, and for which no additional consideration is given other than continued employment, supported by adequate consideration and thus enforceable?
Opinions:
Majority - Wahl, Justice.
Yes, under certain circumstances, a noncompetition agreement entered into after employment has begun can be enforceable. The adequacy of consideration in an ongoing employment relationship depends on the specific facts of each case. While mere continuation of employment could be used to uphold coercive agreements, an agreement is enforceable where it is bargained for and provides the employee with real, subsequent advantages. Here, Richard Davies derived substantial economic and professional benefits after signing the contract, including ten years of continued employment, advancement to a key selling position, specialized training, agency support for licensing, and sole responsibility for many clients. These benefits would not have been available to him had he not signed, as demonstrated by the limited role of his brother who refused to sign a similar agreement. Therefore, adequate consideration supported the agreement. However, the court found the agreement's terms (5 years, 50-mile radius) were unreasonable and, applying the 'blue pencil doctrine,' modified them to a one-year prohibition against soliciting bond business within Hennepin County.
Analysis:
This decision establishes the Minnesota standard for determining the validity of noncompetition agreements signed by existing employees. It rejects a bright-line rule that continued employment is always or never sufficient consideration, opting instead for a fact-specific inquiry into the benefits the employee actually received post-signing. By formally extending the 'blue pencil doctrine' from business sales to the employment context, the court gives trial courts the authority to reform unreasonable covenants rather than voiding them entirely. This provides employers a greater chance of enforcing a modified agreement while still protecting employees from overly broad restrictions.
