National Recruiters, Inc. v. Cashman
323 N.W.2d 736 (1982)
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Rule of Law:
A non-competition agreement is not enforceable if it is presented to an employee after they have commenced employment and is not supported by independent consideration beyond mere continuation of that employment. The adequacy of consideration depends on the specific facts of each case, but requires a real, bargained-for advantage to the employee.
Facts:
- National Recruiters, Inc. (National), an employment agency, hired appellants Bujold, Strong, Cashman, and Holtzman as recruiters.
- During their employment interviews, National informed the appellants about their compensation, bonuses, and pension plan, but did not mention they would be required to sign a non-competition agreement.
- All four appellants accepted their job offers and began working for National.
- After they had started working, between a few days and a week later, National presented each appellant with a non-competition agreement and required them to sign it as a condition of continued employment.
- The agreement prohibited the employees from working for a competing agency within a 50-mile radius for one year after leaving National and included significant liquidated damages clauses for any breach.
- All four appellants eventually left National and began working for other employment recruitment agencies in the area.
- After Cashman began working for a new agency, National's owner, Arnold Stern, called Cashman's new boss and referred to Cashman as 'nothing but a god damn loser, a no good son of a bitch.'
- National sued the appellants to enforce the non-competition agreements.
Procedural Posture:
- National Recruiters, Inc. (plaintiff) sued four former employees (defendants/appellants) and their new employers in Hennepin County District Court (trial court) to enforce a restrictive covenant and for tortious interference.
- The appellant employees counterclaimed for their vested interests in National’s profit-sharing plan, and appellant Cashman counterclaimed for defamation.
- The trial court found the restrictive covenant valid and awarded liquidated damages to National.
- The trial court denied National's claim for tortious interference with contractual relations.
- The trial court granted the appellants’ counterclaims for their vested profit-sharing interests.
- The trial court denied Cashman’s defamation counterclaim, finding no evidence of actual damage.
- The former employees (appellants) appealed the trial court's judgment upholding the non-competition covenant to the Minnesota Supreme Court.
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Issue:
Is a non-competition covenant enforceable when it is presented to an employee after they have already begun work and is not supported by independent consideration other than the continuation of employment?
Opinions:
Majority - Wahl, Justice.
No. A non-competition covenant is invalid and unenforceable when it is not ancillary to the initial employment contract and is unsupported by independent consideration. Courts view such restrictive covenants with disfavor as they are partial restraints on trade. When an employee is required to sign a non-competition agreement after employment has already begun, the agreement is not part of the original bargain and must be supported by new, independent consideration. The court found that continued employment, by itself, is not sufficient consideration. Unlike in prior cases where substantial promotions or other professional benefits received after signing were deemed adequate consideration, the appellants here received no real advantage that was bargained for in exchange for signing the agreement. The practice of presenting such agreements after an employee has started work takes undue advantage of the unequal bargaining power between the parties.
Analysis:
This decision solidifies the legal principle in Minnesota that employers cannot enforce non-competition agreements presented to employees after their employment has commenced without providing new, tangible consideration. It clarifies that merely allowing an employee to keep their job is insufficient, thus requiring employers to offer a concrete benefit such as a promotion, bonus, or specialized training in exchange for the restriction. The ruling protects employees from being coerced into signing away their future employment mobility after they have already relied on an initial job offer and left prior positions. This precedent forces employers to be transparent about all terms of employment, including restrictive covenants, during the initial hiring negotiations.
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