• The Importance Of Assignment Clauses In Employment Agreements
  • February 26, 2004 | Author: Thomas J. Conley
  • Law Firm: Leonard, Street and Deinard, [incorporation phrase format]Professional Association - Minneapolis Office
  • A recent federal court decision suggests that companies that use noncompetition or similar agreements with their employees in Minnesota, or those about to purchase such a company, should check those agreements to ensure that they contain "assignment" provisions.

    In Inter-Tel, Inc. v. CA Communications, Inc., 2003 W.L. 23119384 (D.Minn. 2003), Inter-Tel sought to enforce noncompetition agreements against several former employees who had formed a competing company after being involuntarily terminated by Inter-Tel. The noncompetition agreements that Inter-Tel wanted to enforce were actually agreements between the employees and a previous employer, McLeod. McLeod had sold a portion of its business to plaintiff Inter-Tel, and the employees moved with the business. The agreements did not specify, however, that they were assignable to any third party or otherwise mention Inter-Tel. As a result, the employees argued that Inter-Tel could not enforce the agreements.

    Most Minnesota attorneys have assumed, based on a 1908 decision of the Minnesota Supreme Court called Haugen v. Sundseth, 106 Minn. 129, 118 N.W. 666 (Minn. 1908), that a noncompetition agreement would be enforceable by a successor/purchaser like Inter-Tel even in the absence of a specific provision expressly permitting assignment. The Judge in the Inter-Tel case took a different view, however. Reasoning that Minnesota courts are reluctant to enforce covenants not to compete because they decrease competition and restrict the employee's ability to earn a living, he held that "where the contract does not provide for assignment, a Minnesota court . . . would likely construe the language of the contract against the employer and find any assignment void". As a result, Inter-Tel could not enforce the covenants not to compete contained in the McLeod agreements.

    The practice pointer from this case is very straightforward: when drafting noncompetes or other agreements with restrictive covenants, make sure to include a clause permitting the agreement to be assigned to a successor or purchaser without the consent of the employee. At least in one federal court, that sentence may make all the difference.