Overholt Crop Insurance Service Co. v. Bredeson
437 N.W.2d 698, 1989 WL 26852, 1989 Minn. App. LEXIS 334 (1989)
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Rule of Law:
A court may grant a temporary injunction to enforce a non-compete agreement when the employer demonstrates irreparable harm and a likelihood of success on the merits. Irreparable harm can be inferred from the breach of a reasonable non-compete covenant designed to protect the employer's customer goodwill.
Facts:
- On October 25, 1981, Scott L. Bredeson signed an employment contract with Overholt Crop Insurance Service Company.
- The contract contained a non-compete clause prohibiting Bredeson for two years post-employment from soliciting customers he had personally serviced or competing in territories where he had worked.
- During his employment, Bredeson's duties expanded from selling only crop-hail insurance to also selling multi-peril crop insurance (MPCI), and his territory grew from four to six counties.
- Between 1985 and 1988, Bredeson signed several addenda related to commissions for both types of insurance, but these did not alter the original non-compete clause.
- During this time, Overholt also employed independent agents who sold MPCI in the same territories where Bredeson worked.
- Bredeson resigned from Overholt on February 13, 1988.
- Immediately after resigning, Bredeson began contacting his former Overholt customers and signed new, competing insurance contracts with more than 50 of them, causing them to cancel their policies with Overholt.
Procedural Posture:
- Overholt Crop Insurance Service Company sued Scott L. Bredeson in a Minnesota trial court for breach of a non-compete agreement.
- After an evidentiary hearing, the trial court found that Bredeson had breached the agreement.
- The trial court issued a temporary injunction ordering Bredeson to stop breaching the agreement pending a full trial.
- Bredeson, as the appellant, appealed the trial court's order granting the temporary injunction to the Minnesota Court of Appeals, with Overholt as the respondent.
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Issue:
Is a non-compete agreement in an employment contract, which prohibits a former employee from soliciting the employer's customers for two years in the territory where the employee worked, enforceable through a temporary injunction?
Opinions:
Majority - Randall, J.
Yes, the non-compete agreement is enforceable through a temporary injunction because the employer established that the balance of harms favored granting the injunction and demonstrated a likelihood of success on the merits. The court found that the balance of harms favored Overholt. Irreparable harm to Overholt could be inferred from Bredeson's admitted breach of the covenant and solicitation of over 50 former customers. The harm to Bredeson was minimal, as the injunction only prevented him from contacting less than 10% of the potential customers in his former territory, leaving the other 90% of the market available to him. Furthermore, Overholt demonstrated a likelihood of success on the merits because the non-compete agreement was valid and enforceable. The court rejected Bredeson's arguments that the contract was unconscionable or lacked consideration, noting that employment itself is sufficient consideration for a covenant signed at the inception of the relationship. The covenant's terms were reasonable in subject matter (protecting customer goodwill), geographic scope (limited to areas where Bredeson worked), and its two-year duration was justified to allow a new employee to establish customer relationships. The court also found that Overholt did not breach the contract by using independent agents, as the contract gave Overholt discretion over territories and a policy in a sales manual did not create a contractual guarantee of exclusivity.
Analysis:
This decision reinforces the standards for granting a temporary injunction to enforce a non-compete agreement in Minnesota, emphasizing the court's willingness to infer irreparable harm from the breach itself. It clarifies that a non-compete clause entered into at the start of employment does not require separate, independent consideration to be valid. The case serves as a strong precedent for employers seeking to protect their customer relationships from departing employees, provided the underlying restrictive covenant is reasonably tailored in scope, geography, and duration.
