2016
COMMON MISTAKES EMPLOYERS MAKE WITH THEIR SALES FORCE: Creating Legal Exposure, Litigation and Loss of Business
jeffreyoberman / 0 Comments /This article was originally published for the Midwest Employment Law Institute, May 18-19, 2015.
INTRODUCTION
This article and presentation will address common mistakes made by employers when dealing with their Minnesota salespersons[1] that create legal exposure, litigation and loss of business. Most of them arise out of three main miscues: failure to address and clearly document contract rights and obligations; failure to know and follow statutes; and failure to properly and wisely classify or implement legal relationships.
1. CREATING UNINTENDED CONTRACT DISPUTES
All employers know that formal employment agreements create binding promises and obligations. They may not realize, however, that many other situations can create contractual obligations and alleged breaches.[2] The adage that an “ounce of prevention is worth a pound of cure” is fitting. Most litigation over employment disputes can be avoided or at least resolved quickly and relatively inexpensively, if there is a well written, clear contract that addresses the issue. Sloppy, hurried work, and thinking that it is “only a form,” often lead to litigation; and the litigation, win or lose, can become an employer’s nightmare.
A. Unsigned Employment Contracts
It is not uncommon for employers to have written, but unsigned, agreements. If the parties clearly agreed that there is no agreement until there is a signed agreement, Minnesota courts will enforce that. “When both parties have ‘clearly indicated an intent not to be bound’ until they execute a formal document, no contract exists.”[3] Even where only “one party has ‘intended and expressed the intention from the start not to be bound at all until the execution of the formal contract,’ there is no contract until the condition is fulfilled.”[4]
However, employers and employees regularly engage in negotiations without expressly stating that a fully signed agreement is a condition of the contract being enforced. In those cases, a contract may be binding on a party though not signed by that party.[5] Even a reference to a future contract in writing will not automatically nullify the existence of the present, binding contract, if the parties have agreed to all the essential terms of the contract and proceeded toperform in reliance upon it.[6]
B. Oral Employment Contracts
Most communications during the recruiting and application process are oral. Many oral commitments never make it to a written agreement. Oral offers or promises can create binding contractual obligations.[7] Minnesota courts have held that the law does not distinguish between contracts that are expressed in writing, that are verbal, that are completed by action or that combine all three forms of acceptance.[8]
In the employment context, the issue is often whether employment is guaranteed for a specific period of time. For example, the Minnesota Supreme Court long ago held that an employer’s oral promise of “permanent” employment might be an enforceable contract.[9] To sustain this claim, the employee must prove that there was a specific and definite offer, which was communicated and accepted by the employee.[10] The same principles apply to other oral commitments – if there was a specific and definite offer, which was communicated and accepted by the employee, it is a contract.
Another issue that arises is whether the employer orally modified an earlier written agreement with respect to terms and conditions of employment. Again, if the party asserting the oral modification of a written contract meets the burden of proving the modification by clear and convincing evidence, an oral modification can be upheld.[11] It is even possible to have an oral modification to a written agreement that prohibits oral modifications – as long as the party asserting the modification can prove that the parties did in fact enter into an oral modification of the agreement and that the oral modification did not violate the statute of frauds.[12] Moreover, “[a]lthough the parol evidence rule excludes evidence of contemporaneous and prior agreements varying the terms of a written contract, it does not exclude evidence of subsequent oral modifications of a contract.”[13]
“Both the existence and terms of an oral contract are issues of fact, generally to be decided by the fact-finder.”[14] Similarly, the question whether the parties entered into an oral modification of the contract is ultimately a question of fact.[15]
Even if there was a specific and definite oral offer, which was communicated and accepted by the employee, oral contract claims must avoid the statute of frauds. The statute of frauds provides that no action shall be maintained upon any “agreement that by its terms is not to be performed within one year from the making thereof” unless the agreement is in writing.[16] “The test is simply whether the contract by its terms is capable of full performance within a year, not whether such occurrence is likely… If either party to a contract can fulfill their obligation within a year, the statute of frauds does not apply.”[17] This can be a low bar, since the possibility of death or other employment departures within a year will often satisfy the statute of frauds.[18]
C. Unintended Unilateral Contracts
Employee handbooks and other policies and procedures, if not carefully drafted, may create an employment contract between employers and employees.[19] In Pine River, the Minnesota Supreme Court distinguished between a specific and definite offer (enforceable as a contract), and a general statement of policy (not enforceable as a contract). The court identified four factors required for a provision in a personnel manual to be enforceable as a unilateral contract: (1) an offer which is sufficiently definite and specific, and not merely a general statement of policy; (2) communication of the offer to the employee; (3) acceptance of the offer; and (4) consideration.[20]
Since Pine River there have been many additional cases interpreting when an employee handbook may or may not be deemed to be a contract.[21] For purposes of this article, let it suffice to say that any number of unilateral “promises” in employee handbooks or elsewhere by an employer may end up being interpreted as contractual obligations. To help avoid such claims, employers should put disclaimers in handbooks, policies, and procedures, verifying that they supersede prior handbooks, policies and procedures on the same topic; that they are general guidelines and not contracts; that there are no employment contracts unless in writing and signed by designated officers; and that the employer has the right to unilaterally make changes. Even if the language of an employee handbook satisfies the four requirements of Pine River and Feges, “[a] disclaimer in an employment handbook that clearly expresses an employer’s intent to retain the at-will nature of the employment relationship will prevent the formation of a contractual right to continued employment.”[22]
Similarly, compensation and benefit plans may lead to unilateral contract claims by employees, but they generally will not be upheld if the plan provides that the compensation or benefit is discretionary or that it may be revised or terminated by the employer in its discretion.[23]
D. Implied Employment Contracts; Promissory Estoppel
Contracts may also be implied from other circumstances, including course of dealing, usage of trade and course of performance.[24] Even in cases where an employment contract did not exist at all, Minnesota courts have recognized the doctrine of promissory estoppel, where the courts implied the existence of a contract. Promissory estoppel is “a creature of equity which implies ‘a contract in law where none exist in fact.’”[25]
The doctrine of promissory estoppel provides: “[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”[26] The elements of a claim for promissory estoppel in the employment context are: (1) the employer made a promise; (2) the employer expected or reasonably should have expected the promise to induce definite and substantial action by the employee or potential employee; (3) the promise induced such action; and (4) the promise must be enforced to avoid injustice to the employee or potential employee.[27] The “promise” must be “clear and definite” to trigger promissory estoppel enforcement.[28]
The promissory estoppel doctrine can apply to situations other than promises of employment. For example, the court applied it to enforce an employer’s promise to pay commissions to a former employee based on pending sales, as long as the employee helped transition the accounts to other sales representatives before leaving. Even though there was no clear contract obligation in that case, the court implied a contract by implementing the doctrine of promissory estoppel.[29]
Generally, the promissory estoppel theory is not available when a contract exists.[30] Also, an employee cannot recover pursuant to a promissory estoppel theory, absent a showing that the employee changed his position or declined another lucrative opportunity or job offer in reliance on the promise.[31] Detrimental reliance requires “an actual change in an employee’s position,”[32] or at least a showing that the employee declined a lucrative opportunity or job offer in reliance on the promise.[33]
E. Existence of Contract is Jury Question
The existence of a contract is ultimately a question of fact to be decided by the trier of fact – typically a jury.[34] Moreover, the construction and terms of implied contracts are questions of fact.[35]
1. Parol Evidence Rule may Allow Extrinsic Evidence. “The parol evidence rule prohibits the admission of extrinsic evidence of prior or contemporaneous oral agreements, or prior written agreements, to explain the meaning of a contract when the parties have reducedtheir agreement to an unambiguous integrated writing.”[36] “Accordingly, when parties reduce their agreement to writing, parol evidence is ordinarily inadmissible to vary, contradict, or alter the written agreement.” However, “[i]f it appears from the circumstances surrounding the case that the parties did not intend the agreement to be a complete integration, then parol evidence can be used to prove the existence of a separate consistent oral agreement… Where a written agreement is ambiguous or incomplete, evidence of oral agreements tending to establish the intent of the parties is admissible.”[37]
2. Ambiguous or Incomplete Contracts Create a Litigation Minefield. In the employment context, and particularly given the number of contract claims that are based on documents or promises that are not contained in formal written agreements, incomplete contracts and ambiguity are common; this can create a litigation minefield.
Contract terms “will not be considered ambiguous solely because the parties dispute the proper interpretation of the terms.”[38] A contract is ambiguous only if its language is reasonably susceptible to more than one interpretation.[39] “In construing ambiguous contract language, [courts] consider the contract as a whole in light of the circumstances surrounding its formation, and strive to arrive at the parties’ real understanding.”[40]
Whether a contract is ambiguous is a question of law.[41] However, if the court determines that a provision in an employment agreement is ambiguous – and many are – parol evidence may be considered to determine the parties’ intent. This is a question of fact, and therefore a jury issue,[42] – and there are many facts for the jury to consider, such as mutual intent;[43] words and conduct;[44] negotiations;[45] and course of performing and dealing.[46]
2. MISSING OPPORTUNITIES TO GET ENFORCEABLE AND LASTING AGREEMENTS AND PROTECTIONS
It is common for employers to avoid or postpone implementing written agreements with their sales employees. This can lead to devastating consequences. Some of these employees may view themselves later to be “free agents” who can leave employers to work for or start directly competitive businesses. Others may be critical to later mergers or acquisitions, but have not previously been incentivized to go with the deal or prohibited from competing with the new entity. Many mergers and acquisitions will not take place unless key sales employees go with the deal, stay with the new entity and/or agree not to compete with the business for a period of time after the transaction. Employers can proactively anticipate these situations and reach enforceable and lasting protective agreements with the salespeople.
A. Proper Timing and Implementation of Non-Compete Agreements
Many defenses to non-compete agreements result from improper implementation of an otherwise legitimate and enforceable non-compete agreement. Even if a non-compete agreement is by its terms reasonable and appears to be enforceable, it may fail for lack of sufficient consideration. The validity of consideration often depends on when it was offered to the employee.
1. Non-Compete Agreements Prior To Hire. Generally, Minnesota law treats the employee’s new job as sufficient consideration for a non-compete agreement so long as it is entered into at the commencement of the employment relationship. It is not enough for the employer to give the employee notice about the non-compete agreement without actually presenting it prior to or in tandem with the job offer.[47]
Even if an employee has not physically begun to work, but has already accepted an offer of employment, a non-compete agreement following the original offer of employment cannot be enforced absent independent consideration.[48]
2. Mid-Stream Non-Compete Agreements. A non-compete agreement executed after an employee has commenced employment is unenforceable unless supported by “independent ”[49] Independent consideration in the employment context consists of real benefits that are bargained for between the employee and the employer. “Real benefits” mean more than those to which the employee is already entitled to by virtue of employee status or a separate contract.[50] Continued employment is not sufficient consideration for a non-compete.[51]
Even when an employee receives some amorphous long-term benefits as a result of signing the non-compete, the non-compete is still invalid if the employee is not aware that the benefits were in exchange for the covenant not to compete.[52] Real benefits might include: midstream (or post-termination) compensation or benefit agreements or plans, promotions, or a cash payment.
3. Compensation/Benefit-Related Agreements/Plans. In recent years, more employers are conditioning mid-stream or post-termination compensation or benefit agreements or plans (for enhanced compensation, stock grants and options, bonuses, change of control benefits, severance benefits and other incentives) on the execution of non-compete agreements. To satisfy the independent consideration requirement, the critical step is distinguishing clearly between employees who sign non-compete agreements and those who do not. Otherwise, the alleged “independent consideration” may be illusory.[53]
4. Promotions. A promotion to a higher position with more authority and responsibility is generally viewed as adequate consideration.[54] In fact, a promotion may be adequate consideration even if the employee makes less money after the promotion.[55] However, the timing of the promotion and the signing of the agreement is critical. If an employee is promoted prior to signing the non-compete agreement, then the promotion cannot serve as consideration for the agreement.[56] The Minnesota Court of Appeals recently had to decide whether a promotion, offered informally at first and later in a writing that contained non-solicitation language, served as sufficient consideration for the non-solicitation agreement.[57]
In Softchoice, the employee argued that he was promoted when he was first informed that he would receive the promotion (although the promotion was not implemented at that time); the employer countered that the employee was promoted when he signed a formal offer letter. The Court held that a promotion serves as consideration for a non-compete agreement at the time when the terms of the promotion have been defined and the promotion has been formally offered and accepted in writing, reasoning that the “sales inquiry is when the promotion provides the employee with ‘real advantages.’” In reviewing that decision, however, it seems that if the employee had actually received the increase in compensation, duties, and benefits prior to being provided the documents, the result would have been different.
B. Overly Aggressive Non-Compete Agreements
Overly aggressive non-compete agreements are primed to be ignored and/or successfully challenged. Broad and long non-competes that “go too far” are often fully or partially invalidated.
1. Non-Compete Agreements with Employees Must Be Reasonable and Necessary. Non-compete agreements in the employment context are generally disfavored.[58] Minnesota courts consider non-compete agreements in employment contracts to be partial restraints of trade and construe them narrowly.[59] In Minnesota, an enforceable non-compete agreement must be both necessary to safeguard the employer’s protectable interests and reasonable as between the parties.[60] Courts will uphold non-compete agreements that are “for the protection of the legitimate interest of the party in whose favor [they are] imposed, reasonable as between the parties, and not injurious to the public.”[61] The restrictive covenant is carefully scrutinized to see if it is “necessary for the protection of the business or good will of the employer,” and if the restriction on the employee is no greater than “necessary to protect the employer’s business, regard being had to the nature and character of the employment, the time for which the restriction is imposed, and the territorial extent of the locality to which the prohibition extends.”[62] Critically, the validity of the contract in each case must be determined on its own facts.[63]
2. Unreasonableness of the Restrictive Covenant and the Blue Pencil Doctrine. The reasonableness inquiry occurs on a case-by-case, fact-specific basis.[64] Minnesota courts utilize a modified blue pencil doctrine and will, at their discretion, rewrite portions to make them reasonable.[65] Minnesota courts have historically reviewed two types of restrictions for their reasonableness: temporal and geographical.[66] A covenant whose restriction extends too far into the future or across too broad of a geographical area might be invalidated or modified.[67] However, Minnesota courts have not, to date, applied the blue pencil doctrine to agreements that are invalid for reasons other than the reasonableness as to time, geography or other factors, such as a failure of consideration.[68]
a. Time. Non-compete agreements must be reasonable in their temporal scope, or they will not be enforced.[69] Courts consider a variety of factors in determining whether a restrictive covenant is reasonable from a temporal standpoint, including: (1) nature of the work; (2) time necessary to train new employees; (3) time necessary to allow customers to become familiar with new employees; and (4) time necessary to obliterate the identification between the employer and the employee in the minds of the employer’s customers.[70] Although Minnesota courts have enforced non-compete agreements for periods of two or three years after the termination of employment, these cases are more likely the exception than the rule. In a traditional employment setting (as compared to a sale-of-business setting), the courts are generally reluctant to enforce non-compete agreements for periods longer than one year.[71] In contrast, the Court “has consistently found one-year restrictions that are limited to a former employee’s sales area to be reasonable.”[72]
b. Geographical Territory. Employment-related covenants restricting competition must be reasonable from a geographic standpoint as well, or they will not be enforced.[73] In the past, global restrictions have generally been unenforceable as unreasonably broad.[74] This is hanging as the world marketplace develops.[75] The factors Minnesota courts take into account when judging the reasonableness of a geographical limitation include: (1) reasonable trade area; (2) area where employee actually performed duties; (3) employer’s actual business area; and (4) location of employer’s customers.[76] However, the Court of Appeals has declined to enunciate a per se rule barring the enforceability of non-compete covenants that contained no territorial limitation. “Territorial limitations…are but one of several factors a [district] court is to consider in determining the reasonableness of a restrictive covenant.”[77]
c. Customer-Based Restrictions. Customer restrictions may substitute for or complement a geographic restriction. Often, these make far more sense than pure geographic restrictions since customers may be all over the country or even the world. Basing a territorial restriction on the presence of customers in a certain area enhances the reasonableness of a non-compete agreement.[78]
d. Product-Based Restrictions. Even a world-wide non-compete agreement may be deemed reasonable under the circumstances of the case, where the non-compete covenant prevents the employee from working on competitive products.[79]
e. Non-Solicitation Provisions. Consider customer non-solicitation restrictions in lieu of broad non-compete provisions, where the employee may go to work for a competitor, but may not directly or indirectly solicit or serve its customers (or employees, or improperly use or share confidential information, etc.). While a pure “non-solicitation” provision may not provide as much protection as a full non-compete agreement, the likelihood of it being enforced is greatly enhanced.
C. Vague and Ambiguous Non-Compete Agreements
Non-compete agreements that are unclear, vague and incomplete are not enforceable.[80] If the agreement is ambiguous, the court construes the ambiguities against the drafting party.[81]
D. Remedies that Deter Violations
If the employer’s non-compete agreement contains sufficient remedies, it has a better chance of deterring violations. The two most common and effective provisions provide for the payment of attorney’s fees and costs and forfeiture of benefits.
1. Attorney’s Fees. Generally, attorney’s fees are recoverable only if a statute or contract authorizes such recovery.[82] If the attorney fee provision is ambiguous as to what it covers, the ambiguity is construed against the drafter.[83]
2. Forfeiture of Benefits. Increasingly, employers are including provisions in benefit plans and agreements conditioning an employee’s retention of stock, stock options, or other benefits on not competing with the employer for a certain time period following the employee’s termination. Sometimes the plan/agreement states that the benefit will not be provided (e.g. the employee cannot exercise a stock option) if there is a violation of a non-compete agreement. Other plans/agreements contain claw-back provisions, requiring the violating employee to pay back any prior benefit received. Although decisions in other states vary dramatically (from full enforcements, with no scrutiny to complete bars), Minnesota courts to date have been willing to enforce forfeiture provisions if they pass a test of reasonableness.[84]
E. Preserving the Non-Compete Agreement
One of the most frustrating things that can happen to an employer occurs when it prepares and implements an otherwise perfectly enforceable non-compete agreement that later becomes null and void or cannot as a practical matter be enforced. There are many provisions and steps that can be taken to ensure that the non-compete agreement will survive the occurrence of future events or new contractual obligations.
1. Non-Compete Covenant Must Survive the Termination of Employment. If the non-compete clause is part of a larger agreement – for example, an employment agreement – which contemplates and allows for termination “of the Agreement,” it may not be clear that the non-compete obligations survive termination of the underlying agreement. Post-termination obligations must expressly survive termination of employment.[85]
2. The Employer Must Preserve Right to Assign. The Employer should reserve the right to assign the non-compete agreement without the employee’s consent. Non-compete agreements are assignable in Minnesota.[86] However, Minnesota courts will not allow the assignment of a non-compete absent explicit language permitting assignment.[87]
3. The Employer Must Not Supersede Non-Compete. Employers often include merger clauses in subsequent agreements – for example, a separation agreement or release of claims – which by their terms supersede and thus render unenforceable an employee’s continuing non-competition obligations.[88] In cases where the later writing contains a merger clause, the Minnesota Supreme Court has noted that the merger clause “establishes that the parties intended the writing to be an integration of their agreement.”[89] In other words, if there is a merger clause, integration is presumed.
Even if there is not a merger clause, the court may find that integration was intended. “Where there is no written merger agreement, a determination of whether the written document is a complete and accurate “integration” of the terms of the contract is not made solely by an inspection of the writing itself, important as that is, for the writing must be read in light of the situation of the parties, the subject matter and purposes of the transaction, and the attendant circumstances.”[90]
4. Choice of Law and Forum Selection Clauses. The employer should include both choice of law and forum selection clauses to minimize the risk of litigation across the country – perhaps under another state’s less favorable laws. Generally, courts have enforced such provisions.[91] Further, the Minnesota Court of Appeals recently concluded that forum selection clause in that non-compete agreements binds not only the former employee but the new employer as well, where the new employer is “closely related” to the dispute between the employer and the employee.[92] However, if an agreement provides a choice of law provision in order to benefit from a more favorable law, but the parties do not have the requisite connections to that state, the courts can, and will, elect not to enforce such a provision.[93]
5. Notice Provisions. An employer should require the employee to disclose potential violations and provide the agreement to the new employer. Best case: the employer learns of potential problems in advance and can deal with them. Worst case: the employee and/or the new employer are on notice of the obligation and breached it. Either way, it helps the employer protect its interests.
3. CREATING BONUS AND COMMISSION DISPUTES
1. Common Bonus/Commission Disputes
1. Discretionary Benefit vs. Binding Contract. There is a big difference between an employer’s discretionary bonus and a binding contractual obligation. Many disputes arise out of this distinction. If the plan or agreement says it is discretionary (which many do not say), the Courts will generally enforce that.[94]
2. Unilateral Changes. An oral promise (or unwelcomed declaration) to modify terms of at-will relationship can become part of a contract if the requirements for the formation of a unilateral contract are met: communication of a definite offer and acceptance for valuable consideration.[95] Acceptance for valuable consideration need not always be express. In the context of an employment relationship, when an employer unilaterally offers a change in the terms of employment and informs the employee of the proposed change and the employee does not reject the change, the employee’s retention of employment constitutes acceptance of the offer.[96]
However, where one party has expressly rejected a proposed change, there is no modification to an at-will contract.[97] In Simpson, for example, the employer unilaterally informed Simpson that it would be reducing his commission rate, but Simpson did not accept it, instead replying that he would continue his employment “in accordance with the terms of the original agreement.” The employer did not respond or communicate to Simpson that he must either accept the new commission schedule or find other employment, but began paying Simpson according to the reduced commission rate.[98] At trial, Simpson was awarded damages totaling the difference between the two commission structures.[99] The Eighth Circuit affirmed the verdict, finding that Simpson’s statement that he would continue under the original conditions “was far from any acquiescence in the proposed new commission scale,” and therefore the employer’s proposed changes were not incorporated into the contract.[100]
3. Post-Termination Payments. A common source of disagreement over commissions and bonuses (and other incentive packages) is whether they are payable if the employee leaves before a particular bonus/commission period (e.g.,fiscal year) is over. Similarly, does the employee still have to be employed or under contract at the time of payment (e.g. quarterly) in order to receive it?
4. When Was the Payment “Earned?” Bonus/Commission payments may arguably be “earned” at the time of contract with the customer, the time of delivery/invoicing to the customer or the time of payment by the customer. Bonus awards, similarly, may arguably be “earned” after the work has been done or on some other select date, such as the end of the year.
2. Minnesota Post-Termination Commission Statutes
The payment of bonuses and commissions (as well as other wages and benefits) after the termination of the employment or independent contractor relationship is governed by Minnesota Statutes. Generally, the employer/principal is statutorily required to pay terminated employees/independent contractors for all commissions and/or wages that the sales person earned prior to termination. In addition to wages and commissions, Minn. Stat. §181.13 (and presumably Minn. Stat. §181.14) apply to earned bonuses[101] and also to accrued but unused vacation or paid time off, if they are due under governing contract terms.[102] The time limits and penalties change depending on the relationship and the type of separation. There are four broad categories covered by these statutes: (1) employees who are terminated by the employer;[103] (2) employees who resign;[104] (3) independent contractors who are commission salespersons;[105] and (4) commissioned, independent contractors for wholesalers who are covered by the Minnesota Sales Representation Act.[106]
1. Stat. §181.13: Employees Terminated By the Employer. Upon the termination of a sales or other employee, the employer is required to pay the employee any wages and/or commissions, which were actually earned by the employee and unpaid at the time of discharge, within 24 hours of a written demand. Failure to do so triggers late payment penalties of the employee’s “average daily earnings” for each day that the employer is in default, up to 15 days.
2. Stat. §181.14: Employees Who Resign. Upon the resignation of a sales or other employee, the employer is required to pay the employee all wages and/or commissions, which were actually earned by the employee and unpaid at the time of discharge, no later than the first regularly scheduled payday following the employee’s last day of employment (unless the next payday occurs within five days of the employee’s last day of work, in which case the employer is permitted to delay full payment until the second regularly scheduled payday or twenty total days after the employee’s last day, whichever is sooner). If the employer does not pay the earned wages and/or commissions as required, the employee may demand the wages within 24 hours. Failure to pay triggers late payment penalties of the employee’s “average daily earnings” for each day that the employer is in default, up to 15 days.
3. Stat. §181.145: Independent Contractor Salespersons.[107] An independent contractor salespersons who is paid on the basis of commissions for sales and is not covered under §181.13 or §181.14 (since the sales person is not an employee)[108] is entitled to prompt payment of all commissions earned through the last day of employment as follows: three working days if the commission salesperson is terminated by the principal, or if he/she resigns with at least five days written notice; or six working days if the commission salesperson resigns with less than five days written notice. If the principal fails to pay the commission salesperson his or her earned commissions, the principal is liable for a penalty for each day (not to exceed 15 days) which the principal is late in making the full payment to the salesperson, in addition to the full amount of the commission. The penalty is an amount equal to 1/15 of the salesperson’s commissions earned through the last day of the relationship, but not yet paid. This means that after 15 days, the principal will be liable for twice the amount of the commission earned.[109]
4. Stat. §325E.37: Minnesota Sales Representation Act.[110] The Act (with some stated exceptions and required ties to Minnesota) covers commissioned salespersons who are independent contractors and have contracts with manufacturers, wholesalers, assemblers, or importers to solicit wholesale orders. The contracts can be express, implied, oral, written, for a definite period of time or an indefinite period of time. Interestingly, a 2014 amendment to the Act provides that no principal covered by the Act can circumvent compliance with the Act by including in a sales representative agreement a term or provision that includes or purports to include an application or choice of law of any other state or a waiver of any provision the Act. Any such provision is void and unenforceable.
If the principal does not have “good cause” (as defined in then Act), the principal must give the sales representative written notice of its intention not to renew the agreement at least 90 days prior to the expiration of the agreement; or, if there is no expiration date, the principal must give at least 180 days’ notice of termination. The principal can terminate for good cause with 90 days’ written notice giving the good cause reason for the termination and a 60-day opportunity to cure (which goes uncured).
5. Stat. §181.03: Statutory Penalties for Fraud or Self-Serving Changes to Plan. An “employer may not, directly or indirectly and with intent to defraud: (1) cause any employee to give a receipt for wages for a greater amount than that actually paid to the employee…; (2) …demand or receive from any employee any rebate or refund from the wages owed the employee…; or (3) …make or attempt to make it appear that the wages paid to any employee were greater than the amount actually paid to the employee.”[111] “Except as otherwise provided in section 181.13, an employer…may not alter the method of payment, timing of payment, or procedures for payment of commissions earned through the last day of employment after the employee has resigned or been terminated if the result is to delay or reduce the amount of payment.”[112] “An employer who violates this section is liable in a civil action brought by the employee for twice the amount in dispute.”[113]
6. Stat. §181.79: Statutory Penalties for Wrongful Deductions. “No employer shall make any deduction, directly or indirectly, from the wages due or earned by any employee, who is not an independent contractor, for lost or stolen property, damage to property, or to recover any other claimed indebtedness running from employee to employer, unless the employee, after the loss has occurred or the claimed indebtedness has arisen, voluntarily authorizes the employer in writing to make the deduction or unless the employee is held liable in a court of competent jurisdiction for the loss or indebtedness.”[114] “An employer who violates the provisions of this section shall be liable in a civil action brought by the employee for twice the amount of the deduction or credit taken.”[115]
7. Attorney’s Fees and Costs for Statutory Violations. Attorney’s fees and costs are recoverable when an employer is found to have violated, among others, Minn. Stat. §§181.03, 181.13, §181.14 and §181.145.[116] They also may be recovered by Minnesota sales representatives covered by Minn. Stat. §325E.37.[117]
C. Minnesota Statutes and Cases on Timing of “Earned Commissions”
1. Employees. Stat. §181.13 (and presumably Minn. Stat. §181.14) “is a timing statute, mandating not what an employer must pay a discharged employee, but when an employer must pay a discharged employee.’”[118] Thus, the “wages that an employee has actually earned are defined by the employment contract between the employer and the employee…”[119] If an employee’s bonus or commission is not “earned” as of the time of termination as defined by the employment contract, there is no valid claim for breach of contract or violation of Minn. Stat. § 181.13.[120] Minn. Stat. §181.13 and Minn. Stat. §181.14 do not define when a commission is earned. It is a matter of contract. If a commission agreement with an employee salesperson clearly states that a commission is not earned until the customer renders payment, then the salesperson is not entitled to the commission when it was received after termination; and may not even be entitled to it ever.[121]
2. Independent Contractors. Stat. §181.145, Subd. 1 does define commissions earned as follows: “For the purposes of this section, the phrase “commissions earned through the last day of employment” means commissions due for services or merchandise which have actually been delivered to and accepted by the customer by the final day of the salesperson’s employment. It also provides that “Nothing in this section shall be construed to impair a commission salesperson from collecting commissions on merchandise ordered prior to the last day of employment but delivered and accepted after termination of employment. However, the penalties prescribed in subdivision 3 apply only with respect to the payment of commissions earned through the last day of employment.” Id., Subd. 5. Therefore, it still leaves room for interpretation as to when a commission was earned.[122]
3. Minnesota Sales Representatives Covered by Minn. Stat. §325E.37: A sales representative covered by this Act is entitled to the commissions earned from all sales the representative would have made had termination not occurred either (1) made prior to termination or (2) made prior to the end of the notification period, whichever is longer. Payment of the commissions must be made, whether or not the goods were actually shipped. [123] Payment of the commissions is made either in accordance with the sales representative agreement or in accordance with Minn. Stat. §181.145. [124]
D. Minnesota Equitable Doctrines on Timing of “Earned Commissions”
Equitable doctrines may be asserted in an attempt by an employee to recover commissions and bonuses when no contract exists.
1. Promissory Estoppel.[125] One court applied the promissory estoppel doctrine to enforce an employer’s promise to pay commissions to a former employee based on pending sales, as long as the employee helped transition the accounts to other sales representatives before leaving. Even though there was no clear contract obligation in that case, the court implied a contract by implementing the doctrine of promissory estoppel.[126]
2. Unjust Enrichment. If there is no clear contractual or plan language, a former employee may be able to recover payment for post-termination commissions based on an unjust enrichment theory.[127] The doctrine of unjust enrichment “allows a plaintiff to recover a benefit conferred upon a defendant when retention of the benefit is not legally justifiable.”[128] To state a claim for unjust enrichment in Minnesota, “the claimant must show that another party knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for that person to retain the benefit.”[129] “[U]njust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term ‘unjustly’ could mean illegally or unlawfully.”[130] “An action for unjust enrichment may be founded upon failure of consideration, fraud, or mistake, or situations where it would be morally wrong for one party to enrich himself at the expense of another.”[131]
Like promissory estoppel, unjust enrichment is an equitable claim that “does not apply when there is an enforceable contract that is applicable.”[132] However, unlike a promissory estoppel claim, an unjust enrichment claim does not require a clear and definite promise. A party is unjustly enriched when he knowingly receives something of value to which he is not entitled under circumstances that make it unjust for him to retain the benefit.[133]
3. Procuring Cause. Another equitable remedy is the “procuring cause” doctrine.[134] Under the procuring-cause doctrine, a terminated salesperson that does not have a contract that addresses the right to commissions after termination may seek payment of commission on a sale when that salesperson was the “procuring cause” of that sale, even if the commission was not earned prior to the date of the salesperson’s termination.[135] However, “[t]he procuring-cause doctrine is designed to fill gaps – gaps that exist because a salesperson was working without a contract, or because the contract under which a salesperson was working did not address his or her entitlement to commissions after termination.”[136] The procuring-cause doctrine only applies when a sales representative is terminated but there is no contract delineating the sales representative’s right to commissions after termination.[137]
E. Draws Against Commissions are a Matter of Contract
Employers often provide their sales employees with draws. Typically, the understanding is that draw will be applied against commissions actually earned. Often, the commission account gets overdrawn, and remains overdrawn as of the employee’s termination of employment. The Minnesota courts have held that, “[where] a salesman working on commission has a draw account against commissions, there can be no recovery against him for overdrafts received in the absence of a specific contractual obligation, or an express or implied agreement of repayment.”[138]
F. Employers May Not Make Payment of Commissions or Bonus Conditioned on a Release of Claims that is not a Contractual Requirement
Many employers/principles who dispute commissions or bonus claims want to make the disputed payment contingent on a release of claims. While this desire is understandable, it is likely unenforceable.[139] In Dougan, even though the principle had offered to pay the same amount in commissions that the salesperson ultimately received (before penalties), the Court imposed penalties and attorney fees because a principal cannot make prompt payment contingent upon any release of future claims.[140]
4. CREATING UNNECESSARY OWNERSHIP AND FIDUCIARY OBLIGATIONS
Many privately owned employers offer to give their key sales employees a small ownership interest, without considering the ramifications of having a minority owner or considering other alternatives. This can lead to trouble, especially where the majority owners are not accustomed to working with minority owners. In addition to traditional employment claims and contract claims, minority owners may assert additional claims against their employer/partnership, and their fellow shareholders/partners.
Regardless of the form of the business, there may be a statute that provides protections to minority shareholders/partners, fiduciary obligations and equitable rights and remedies.[141] Partners also have a common law fiduciary duty to each other as well as to the partnership. Minnesota law imposes the highest duty of integrity and good faith on partners in their dealings with each other.[142]
The Minnesota Supreme Court has compared closely held corporations to a “partnership in corporate guise.”[143] Thus, shareholders in closely held corporations have a fiduciary duty to each other.[144] The fiduciary relationship imposes upon shareholders the “highest standards of integrity and good faith in their dealings with each other.”[145] A shareholder’s claim for breach of common law fiduciary duty can be brought in addition to claims for minority shareholder relief pursuant to Minn. Stat. § 302A.751.[146]
Minnesota courts have addressed several actions, which the courts have held or commented to be violations of fiduciary duties, such as: honesty and disclosure of material facts;[147] conflicts of interest;[148] “freeze-out” situations;[149] interfering with rights, such as with the fellow shareholder’s ability to perform his job, and defaming and threatening the fellow shareholder;[150] and under the right circumstances, an employee/shareholder may have an additional and separate claim for wrongful termination based on a reasonable expectation that his or her employment was not terminable at will, or even that there was an agreement to provide lifetime employment.[151] In the Pedro cases, the Court made it clear that the plaintiff in that case (which involved unique facts) had a reasonable expectation as a shareholder in a closely held corporation “that his employment was not terminable at will.”[152]
Private employers can avoid the risk of minority ownership claims, and still share the wealth, by providing the sales employee with contractual rewards for success, such as guaranteed bonuses, payments for a percentage of the growth of the business, phantom stock agreements, retention agreements and awards for helping sell the company. These alternatives are usually less expensive to implement, and can easily avoid the creation of minority owner obligations and the issues that may flow from those obligations.
5. MISCLASSIFICATION OF EMPLOYEES AS INDEPENDENT CONTRACTORS
A. Why Employer Prefer Independent Contractor Status
In the modern workplace, the use of independent contractor relationships has flourished. If businesses retain independent contractors, rather than hire employees, the businesses can often avoid taxes;[153] employee benefits; workers’ compensation benefits;[154] unemployment benefits;[155] overtime pay obligations;[156] civil rights protections;[157] labor laws;[158] and indemnity obligations under various statutes.[159]
B. The Government has Noticed, is Acting and is Sharing
Businesses that improperly classify workers as independent contractors contribute to the tax gap, deprive the workers of federal, state and local employment-related protections, which in turn lead to more governmental financial assistance to those workers, and put businesses that properly classify workers as employees at a competitive disadvantage. Several governmental agencies have shown increased interests in this issue and/or have taken actions to enhance enforcement.[160]
Special note should be made that the Minnesota legislative auditor recommended that the Minnesota Department of Employment and Economic Development, the Minnesota Department of Labor and Industry and the Minnesota Revenue Department work together to coordinate definitions, legislation, audits, and investigation relating to worker classification, and to increase litigation options and various penalties. Further, it recommended that the three departments establish procedures to routinely share information about identified instances of misclassification and work together and with the legislature to address them.[161]
C. The High Risks of Being Wrong
The misclassification of employees as independent contractors can lead to serious consequences such as (often uninsured) liability, penalties, and even criminal offenses.
1. Despite Well Drafted Agreements, Labels May Not Count. If the parties identify, in a contract or otherwise, an individual as an independent contractor, this designation may not survive a challenge if the relationship is actually an employer-employee relationship. “The labels that the parties give themselves is not determinative; the relationship is determined by the law, not the parties.”[162]
2. Penalties. A false declaration that a person is an independent contractor can create a “perfect storm” of expenses, insurance, liability, penalties, and even criminal sanctions. For example:
a. Stat. § 181.722 (2005). This statute prohibits an employer (1) from misrepresenting the nature of the relationship to any government unit or to its employees and (2) from requesting or requiring an employee to enter into an agreement that results in misclassification. The statute provides that the nature of the employment relationship is determined by the tests used under applicable workers’ compensation and unemployment insurance laws. Upon violation of this statute, the court shall submit its findings of fact to the commissioner of labor and industry, who will then report the violation to any and all applicable agencies.
b. Fair Labor Standards Act. The Fair Labor Standards Act (“FLSA”) and similar state statutes require employers to pay “employees” certain minimum wages and require overtime to be paid to non-exempt employees under specified circumstances. Employers who violate the federal FLSA or Minnesota FLSA are liable to the employee(s) for double damages.[163]
c. Stat. § 177.27. “Any employer who is found… to have repeatedly or willfully violated [minimum wage or overtime requirements] shall be subject to a civil penalty of up to $1,000 for each violation for each employee. In determining the amount of a civil penalty under this subdivision, the appropriateness of such penalty to the size of the employer’s business and the gravity of the violation shall be considered.” Also, under Minn. Stat. § 177.32 (Minnesota record-keeping requirement): “The commissioner may fine an employer up to $1,000 for each failure to maintain records…”
d. Attorney’s Fees to Employees. The employee may seek other damages and other appropriate relief, including attorney’s fees.[164]
e. Anti-Retaliation. An employer cannot wrongfully terminate an employee who makes a complaint that the employer is not complying with the Fair Labor Standards Act. For example, under Minn. Stat. §177.32, an employer will be assessed a fine of $700.00 to $3,000.00 if it is convicted of either wrongfully terminating or otherwise discriminating against an employee. An employer will be fined under this statute for terminating or discriminating against an employee if “(1) employee complained to employer that wages were not paid under § 177.21 –.435; (2) employee started a proceeding under or related to § 177.21-.435; or (3) employee testifies in any proceeding.[165] In addition, an employer who does not comply with Minn. Stat. §177.25—including failure to pay overtime to an employee who deserves payment — is guilty of a misdemeanor.[166]
f. Tax. If the IRS finds that an employer has misclassified an employee as an independent contractor, the employer will be obligated to pay back taxes, as well as interest and potential penalties.[167] Also, the person that “blew the whistle” may be entitled to be paid a whistleblower fee of up to 30 percent of the amount of tax, interest, and penalties ultimately collected by the IRS.[168]
g. Benefit Plans. If, as a result of being misclassified as an independent contractor, an individual is not eligible to receive these benefits, the employer risks the disqualification of its benefit plans. This is a potentially catastrophic risk, as it affects all employees and not merely the employee who was misclassified.
h. Workers’ Compensation. Failure to provide workers’ compensation insurance coverage where required by law can result in substantial financial penalties, including the assessment of $1,000.00 per week of non-compliance for each uninsured employee.[169] In addition, an employer that willfully and intentionally fails to provide such coverage is guilty of a gross misdemeanor.[170]
i. Unemployment. If an employer makes a false statement knowing it to be false or without a good faith belief as to its correctness in order to prevent or reduce the amount of unemployment coverage to an individual or the payment required by the employer (such as the classification of an employee as an independent contractor to reduce payments), the employer will be subject to a $500 penalty or 50 percent of the reduced unemployment benefits or payment required, whichever is greater.[171]
j. Insurance. It should be noted that insurance companies are likely to deny an employer’s coverage (e.g. workers’ compensation, employment practices liability, other liability) relating to an “independent contractor” who was not disclosed as an “employee” at the time of the insurance application; and are even more likely to decline to pay for penalties resulting from improper classification.
D. Factors to Determine Employee v. Independent Contractor
There are seemingly endless statutory, regulatory and common law definitions and tests to determine who is an employee who is an independent contractor. When analyzing an issue, it is critical to make sure you carefully review and are operating under the right set of guidelines. For example:
1. IRS. The IRS has historically applied a twenty-factor analysis to be used as a guide to determine the status of a worker.[172] It considers: instructions and control; training; integration; personal services; hiring, supervising, and payment of assistants; continuing relationship; set hours of work; full-time required; work on the company’s premises; order or sequence set; oral or written reports; payment by the hour, week or month; payment of business and/or travel expenses; furnishing of tools and materials; significant investment; realization of profit or loss; working for more than one firm at a time; making services available to the general public; right to discharge; and right to terminate the relationship.[173] The degree of importance of each factor varied depending on the occupation and the factual context in which the services are performed. The most important aspect of the relationship is the degree of control exercised by the principal over the individual worker. The twenty factors are intended to indicate whether the principal has a sufficient degree of control over the worker such that an employer-employee relationship exits. In general, the greater the control exercised by the principal, the more likely the worker will be found to be an employee.[174]
2. Economic Realities Test and the Fair Labor Standards Act. Courts analyzing the employment status of an individual in an FLSA action have created and utilized the “economic realities test.” The factors initially established by the U.S. Supreme Court[175] have evolved to a review of at least five factors: the degree of control exercised by the business; the extent of the relative investments of the worker and the business; the degree to which the worker’s opportunity for profit or loss is determined by the business; the skill and initiative required in performing the job; and the permanency of the relationship.[176] Some jurisdictions add a sixth factor to the inquiry: whether the service rendered by the worker is an integral part of the alleged employer’s business.[177]
3. Federal Common Law Right to Control Test and National Labor Relations Act. Federal courts have generally applied the common law agency or “right to control” test[178], which considers several factors: the alleged employer’s right to control the manner and means by which the individual’s work is accomplished; the skill required to perform the individual’s duties; the source of tools and instrumentalities needed to perform the duties; the location where work is performed; the duration of parties’ relationship; the businesses’ right (or lack thereof) to assign additional projects; the individual’s discretion over when and how long to work; the method of payment; the individual’s role in hiring and paying assistants; whether the work is part of alleged employer’s regular business; whether “employee benefits” are provided; and the tax treatment of the individual. Since the 1947 Taft-Hartley amendments to the NLRA, which contained provisions excluding independent contractors from its coverage, the NLRB has applied the common law “right of control” test to determine whether particular classes of individuals are employees or independent contractors for purposes of NLRA coverage.
4. Minnesota Common Law. Minnesota courts will consider: who has the right to control the means and manner of performance; the mode of payment; who furnishes the material or tools; who controls the premises where the work is done; and the businesses right to discharge.[179] The right to control the means and manner of performance generally carries the greatest weight in a determination of the worker’s status.[180]
5. Minnesota Regulations. Minnesota has several different regulations, factors and definitions, depending on the departmental agency that is involved.[181] Generally, Minnesota agencies have adopted the economic realities tests as a means to determine whether an individual is an independent contractor or an employee. Pursuant to Minnesota Rule 5200.0221, “all factors must be weighed to determine whether the worker is economically dependent upon the business to which the worker provides services.”(Emphasis added).[182]
The Minnesota Court of Appeals summarized Minnesota common law and Minnesota Rule 3315.0555, as follows: “Traditionally, five factors are used to determine whether a worker is an employee or an independent contractor: “(1) The right to control the means and manner of performance; (2) the mode of payment; (3) the furnishing of material or tools; (4) the control of the premises where the work is done; and (5) the right of the employer to discharge.”[183] Of these five factors, the two most important are “the right or the lack of the right to control the means and manner of performance,” and the right or the lack of the right “to discharge the worker without incurring liability.”[184]
The Minnesota Rules also provide additional factors to be considered when determining whether an employment relationship exists, including: (1) whether the individual makes services available to the public; (2) whether the individual is compensated on a job basis or by the hour; (3) whether the individual is in a position to realize a profit or loss as a result of the services offered; (4) whether the individual may end the relationship without incurring liability; (5) whether the individual made a substantial investment in the facilities used to perform the services; (6) whether the individual works simultaneously for multiple firms; (7) whether the individual is accountable for his or her own actions while working; and (8) whether the services performed by the individual are in the course of the employer’s organization, trade or business.[185]
In sum, independent contractor agreements can be devastating if they are used to misclassify an employee as an independent contractor. Great care and caution must be taken before entering into such an agreement, when preparing such an agreement and when implementing one. The risks of being wrong include legal exposure, financial exposure and the amount of time that may be needed to defend against several agencies and plaintiffs.
CONCLUSION
Salespeople and their hiring/retaining employers/principals often overlook contractual, statutory and other business and legal issues. This can – and often does – lead to misunderstandings, conflicts, and disputes over both money and customers. Employers/principles have an opportunity to proactively and cooperatively address all issues with sales employees up front and avoid creating a “perfect storm” at a later date. Carefully drafted agreements and benefit plans can and should anticipate and clearly state the parties’ agreements, obligations and expectations under all foreseeable circumstances. It is far easier to cooperatively negotiate and fairly address possible issues up front than it is to argue – or worse yet litigate – them after a dispute arises.
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[1] Many of these mistakes apply equally to non-sales personnel.
[2] See, e.g., Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983).
[3]Moga v. Shorewater Advisors, LLC, No. A08-785, 2009 WL 982237, at *4 (Minn. Ct. App. 2009) (citation omitted).
[4] Id. (citation omitted).
[5] Welsh v. Barnes-Duluth Shipbuilding Co., 21 N.W.2d 43, 46–47 (Minn. 1945) (“[w]here a signature is not required by some positive rule of law, as, for example, in certain cases by the statute of frauds, assent or mutuality may be shown by the fact that the parties accepted the writing as a binding contract and acted on it as such, even though it was not signed”).
[6] Asbestos Products, Inc. v. Healy Mechanical Contractors, Inc., 235 N.W.2d 807, 810 (Minn. 1975); see also Massee v. Gibbs, 169 Minn. 100, 105, 210 N.W. 872, 874 (Minn. 1926) (“[T]he expressed contemplation of a more formal document did not prevent the [parties’ correspondence] from having the effect that otherwise [it] would have had.” (citation omitted); Riley Bros. Constr., Inc. v. Shuck, 704 N.W.2d 197, 203 (Minn. Ct. App. 2005) (“While the parties could have agreed that a written agreement was a condition precedent to completion of a contract, there is no evidence to suggest that both parties agreed to such a course of conduct”) (citation omitted); Moga v. Shorewater Advisors, LLC, No. A08-785, 2009 WL 982237, at *5 (Minn. Ct. App. April 14, 2009) (“An unwritten contract may exist if neither party has clearly expressed the intent to be bound only by a formalized written agreement, even if both parties intended that the agreement eventually would be reduced to writing”) (citation omitted).
[7] Skagerberg v. Blandin Paper Co., 266 N.W. 872 (Minn. 1936); Riley Bros. Constr., Inc. v. Shuck, 704 N.W.2d 197, 203 (Minn. Ct. App. 2005).
[8] Georgens v. Federal Deposit Ins. Corp., 406 N.W.2d 95, 97 (Minn. Ct. App. 1987).
[9] Skagerberg, supra.
[10]Thompson v. Campbell, 845 F. Supp. 665 (D. Minn. 1994); Schibursky v. International Business Machines Corp., 820 F. Supp. 1169 (D. Minn. 1993); Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983). See e.g., Piekarski v. Home Owners Sav. Bank, F.S.B., 956 F.2d 1484, 1489–90 (8th Cir. 1992) (employer’s statement that the employee had a “future” was not an oral contract for permanent employment); Dumas v. Kessler & Maguire Funeral Home, Inc., 380 N.W.2d 544, 547 (Minn. Ct. App. 1986) (employer’s comment that they would retire together was not an oral contract for permanent employment); Degen v. Investors Diversified Services, Inc., 110 N.W.2d 863, 866 (Minn. 1961) (employer’s comment that employee had a great future with the company and to consider his job a career situation was not enough to create an oral contract for permanent employment); see also Songa v. Sunrise Senior Living Investments Inc., CIV. 13-2254 DSD/JJG, 2014 WL 2009082 (D. Minn. May 16, 2014); Shelander v. Johnstech Int’l Corp., A13-1544, 2014 WL 1408068 (Minn. Ct. App. Apr. 14, 2014); Wood v. SatCom Mktg., LLC, CIV. 11-503 ADM/FLN, 2012 WL 591503 (D. Minn. Feb. 22, 2012) aff’d, 705 F.3d 823 (8th Cir. 2013).
[11] See Waters v. Cafesjian, 946 F. Supp. 2d 876, 880-81 (D. Minn. 2013).
[12] MAS Products, Inc. v. MAS Acquisition, Inc., A11-1254, 2012 WL 612318 (Minn. Ct. App. Feb. 27, 2012).
[13] Id., quoting LaPanta v. Heidelberger, 392 N.W.2d 254, 258–59 (Minn.App.1986).
[14] Bowman Const. Co., Inc. v. LaValla Sand & Gravel, Inc., A13-0269, 2013 WL 6152194 (Minn. Ct. App. Nov. 25, 2013), quoting Rios v. Jennie–O Turkey Store, Inc., 793 N.W.2d 309, 315 (Minn.App.2011), rev. denied (Minn. Mar. 29, 2011).
[15] MAS Products, Inc. v. MAS Acquisition, Inc., A11-1254, 2012 WL 612318 (Minn. Ct. App. Feb. 27, 2012), citing Johnson v. Quaal, 250 Minn. 154, 158, 83 N.W.2d 796, 799 (1957).
[16] Minn. Stat. Ann. § 513.01; See Amann v. Allianz Income Management Services, Inc., No. A09-1891, 2010 WL 3220061, at *2 (Minn. Ct. App. April 14, 2010).
[17] Id.
[18] Eklund v. Vincent Brass and Aluminum Co., 351 N.W.2d 371, 375-76 (Minn. Ct. App. 1984); Bussard v. College of St. Thomas, Inc., 200 N.W.2d 155, 161 (Minn. 1972); Bolander v. Bolander, 703 N.W.2d 529, 547 (Minn. Ct. App. 2005).
[19] E.g., Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983); Feges v. Perkins Restaurants, Inc., 483 N.W.2d 701 (Minn. 1992).
[20] Pine River at 622 (Minn. 1983).
[21] See, e.g., Lindgren v. Harmon Glass Co., 489 N.W.2d 804, 810 (Minn. Ct. App. 1992), rev. denied; Hunt v. IBM Mid America Employees Federal Credit Union, 384 N.W.2d 853, 857 (Minn. 1986); Dumas v. Kessler & Maguire Funeral Home, Inc., 380 N.W.2d 544, 546–47 (Minn. Ct. App. 1986); Martens v. Minnesota Min. & Mfg. Co., 616 N.W.2d 732 (Minn. 2000).
[22] Coursolle v. EMC Ins. Group, Inc., 794 N.W.2d 652, 659 (Minn.Ct.App.2011), quoting Alexandria Hous. & Redev. Auth. v. Rost, 756 N.W.2d 896, 906 (Minn.Ct.App.2008)).
[23] E.g., Bahr v. Technical Consumer Products, Inc., 5:13CV1057, 2014 WL 1094426 (N.D. Ohio Mar. 17, 2014); Chambers v. The Travelers Companies, Inc., 764 F. Supp. 2d 1071, 1087-88 (D. Minn. 2011), aff’d sub nom. Chambers v. Travelers Companies, Inc., 668 F.3d 559 (8th Cir. 2012); Bley v. ClickShip Direct, Inc., No. 01–611 MJD/SRN, 2001 WL 1640093, at *1 (D. Minn. Dec.12, 2001).
[24] See Minn. Stat. § 336.1-201(3) (defining “agreement”); Moga v. Shorewater Advisors, LLC, No. A08-785, 2009 WL 982237, at *4 (Minn. Ct. App. April 14, 2009) (“Not only are the words and actions of the parties relevant, but ‘the surrounding facts and circumstances in the context of the entire transaction, including the purpose, subject matter, and nature of it’ may also be considered”) (citation omitted).
[25] Ruud v. Great Plains Supply, Inc., 526 N.W.2d 369, 372 (Minn. 1995), quoting Grouse v. Group Health Plan, Inc., 306 N.W.2d 114, 116 (Minn. 1981).
[26] Faimon v. Winona State University, 540 N.W.2d 879, 882 (Minn. Ct. App. 1995) (citation omitted).
[27] Martens v. Minn. Mining & Mfg. Co., 616 N.W.2d 732, 746 (Minn. 2000); Cohen v. Cowles Media Co., 479 N.W.2d 387, 391 (Minn. 1992); Grouse v. Group Health Plan, Inc., 306 N.W.2d 114, 116 (Minn. 1981); Waters v. Cafesjian, 946 F.Supp.2d 876, 882 (D.Minn.2013).
[28] Ruud v. Great Plains Supply, Inc., 526 N.W.2d 369, 371–72 (Minn. 1995) (“good employees are taken care of” was too ambiguous to be a promise of permanent employment); Dumas v. Kessler & Maguire Funeral Home, Inc., 380 N.W.2d 544, 548 (Minn. Ct. App. 1986) (statement that the employer and the employee would “retire together” was not a sufficient promise to establish a cause of action for promissory estoppel).
[29] Fiebelkorn v. IKON Office Solutions, Inc., 668 F.Supp.2d 1178, 1186 (D. Minn. 2009).
[30] Gorham v. Benson Optical, 539 N.W.2d 798, 801 (Minn. Ct. App. 1995); LeJeune Steel Co. v. New Millennium Bldg. Sys., LLC, 11-CV-1463 JNE/SER, 2012 WL 1072402 (D. Minn. Mar. 29, 2012).
[31] Waters v. Cafesjian, 946 F. Supp. 2d 876 (D. Minn. 2013). (Employee’s claim that the employer promised to compensate him according to the value of the employer’s holdings and that he remained in the employer’s employ from 2000 through 2009 in reliance on those promises failed for lack of detrimental reliance).
[32] Citing Krutchen v. Zayo Bandwidth Northeast, LLC, 591 F.Supp.2d 1002, 1017 (D.Minn.2008)).
[33] Citing Eklund v. Vincent Brass & Aluminum Co., 351 N.W.2d 371, 378 (Minn.Ct.App.1984); See also Nelson v. SGS N. Am., Inc., 12-CV-2854 SRN/JJG, 2014 WL 2746031 (D. Minn. June 17, 2014) (Despite many communications about, and a possible contract right for, a bonus, the employee did not establish “an actual change in the employee’s position,” or at least a showing that the employee declined a lucrative opportunity or job offer in reliance on the promise (citing Waters, 946 F.Supp.2d at 882)”. Id.
[34] Lakeview Terrace Homeowners Ass’n v. Le Rivage, Inc., 498 N.W.2d 68, 72 (Minn. Ct. App. 1993).
[35] Stubbs v. North Memorial Medical Center, 448 N.W.2d 78, 82 (Minn. Ct. App. 1989).
[36] Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minnesota, 664 N.W.2d 303, 312-13 (Minn. 2003) (citation omitted).
[37] Id. See also, Redman v. Sinex, 675 F. Supp.2d 961, 965 (D. Minn. 2009).
[38] Cent. Specialties, Inc. v. Todd County, Min., A13-1528, 2014 WL 1875843 (Minn. Ct. App. May 12, 2014), citing Knudsen v. Transp. Leasing/Contract, Inc., 672 N.W.2d 221, 223 (Minn.App.2003), rev. denied (Minn. Feb. 25, 2004).
[39] Art Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn.1997)).
[40] State ex rel. Humphrey v. Philip Morris USA, Inc., 713 N.W.2d 350, 355 (Minn.2006).
[41] Dykes v. Sukup Mfg. Co., 781 N.W.2d 578, 582 (Minn. 2010).
[42] Id.
[43] See, e.g, Travertine Corp. V. Lexington – Silverwood, 683 N.W.2d 267, 271 (Minn. 2004); Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn. 2003).
[44] Cederstrand v. Lutheran Brotherhood, 117 N.W.2d 213, 221 (Minn. 1962). See also, Minneapolis Cablesytems v. Minneapolis, 299 N.W.2d 121, 122 (Minn. 1980); Bergstedt, Wahlberg, Berquist Associates, Inc. v. Rothchild, 225 N.W.2d 261, 263 (Minn. 1975); Riley Bros. Constr., Inc. v. Shuck, 704 N.W.2d 197, 202 (Minn. Ct. App. 2005) (citation omitted).
[45] Donnay v. Boulware, 144 N.W.2d 711, 716 (Minn. 1966).
[46] E.g., Fredrich v. Indep. Sch. Dist., 720, 465 N.W.2d 692, 696 (Minn. Ct. App. 1991) (“the interpretation the parties themselves place on the contract is entitled to great, and perhaps controlling, weight in ascertaining the terms of the contract.”); J.J. Brooksbank Co., Inc. v. Budget Rent-A-Car Corp., 337 N.W.2d 372, 375-76 (Minn. 1983); Telex Corp. v. Data Prods. Corp., 135 N.W.2d 681 (Minn. 1965); Blomker v. Magedanz, A13-1119, 2014 WL 621695 (Minn. Ct. App. Feb. 18, 2014).
[47] Nat’l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982); Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 133 (Minn. 1980) (concluding that a non-compete agreement was not ancillary to the employment contract where the employee had been made aware of its existence during employment negotiations but was not given a chance to examine it despite requesting to see it); Midwest Sports Mktg. v. Hillerich & Bradsby of Canada, Ltd., 552 N.W.2d 254, 265–66 (Minn. Ct. App. 1996) (refusing to enforce an agreement whose terms were not presented to the employee until after he began work); FSI Int’l, Inc. v. Shumway, No. Civ. 02-402RHKSRN, 2002 WL 334409, (D. Minn. Feb. 26, 2002) (denying motion for preliminary injunction or TRO on the basis that the mid-stream non-compete agreement was not supported by sufficient independent consideration and there was no evidence of a competing product); J. K. Harris & Co., LLC v. Dye and ABC Co., No. Civ. 01-2041RHKJMM, 2001 WL 1464728, (D. Minn. Nov. 16, 2001) (denying TRO because Court found that covenant not to compete was entered into after employment began and was not supported by adequate consideration); Drummond American LLC v. Share Corporation, Civ. No. 08-5077JRTRLE, 2010 WL 3167326 (D. Minn. July 23, 2010) (recent summary of Minnesota decisions regarding the independent consideration requirement and great example of the factual analysis needed); Menzies Aviation (USA), Inc. v. Wilcox, CIV. 13-2702 MJD/JJK, 2013 WL 5663187 (D. Minn. Oct. 17, 2013) (denying motion for TRO against former employee where employee had already started his employment when he signed agreement and received no new benefits under agreement).
[48] Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161 (Minn. Ct. App.1993); see also TestQuest, Inc. v. La France, No. C0-02-783, 2002 WL 196287 (Minn. Ct. App. Aug. 27, 2002) (upholding mid-stream agreement allowing the employee to continue working and obtain additional vested stock options, which constituted sufficient consideration); But see Progressive Tech. Inc., v. Shupe, No. A04-1110, 2005 WL 832059 (Minn. Ct. App. April 12, 2005; Tonna Heating Cooling, Inc., v. Waraxa, No. CX-02-368, 2002 WL 31687601, at *3 (Minn. Ct. App. Dec. 3, 2002).
[49] Jostens, Inc. v. Nat’l Computer Sys., Inc., 318 N.W.2d 691, 703 (Minn. 1982). (The Minnesota Court of Appeals recently held that the post-employment independent – consideration requirement that exists in the employment contexts does not apply to independent contractors. Schmit Towing, Inc. v. Frovik, No. A10-362, 2010 WL 4451572 at *3 (Minn. Ct. App. Nov. 9, 2010)).
[50] Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn. Ct. App. 1993).
[51] Nat’l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982).
[52] Northwest Publications, L.L.C. v. Star Tribune Company, No. C6-07-003489 (Ramsey Co. Dist. Ct. Sept. 18, 2007). But see Witzke v. Mesabi Rehabilitation Svcs., Inc., No. A07-0421, 2008 WL 314535, at *3 (Minn. Ct. App. Feb. 5, 2008), overruled on other grounds, 768 N.W.2d 127 (Minn. Ct. App. 2009) (finding that the employee’s rise within the company, continued employment for many years, training, and increased responsibility constituted sufficient consideration); TestQuest, Inc. v. LaFrance, No. C0-02-783, 2002 WL 1969287 (Minn. Ct. App. Aug. 27, 2002) (finding that access to an employer’s confidential information was adequate consideration for a non-compete agreement).
[53] Freeman v. Duluth Clinic, Inc., 334 N.W.2d 626 (Minn. 1983) (where both signers and non-signers of a non-compete agreement receive the same benefits under an associated compensation plan, a court cannot find that an employee’s signing of the non-compete agreement was a condition of receiving the compensation plan. Id. at 630); BFI-Portable Services. Inc. v. Kemple, No. C5-89-1172, 1989 WL 138978 (Minn. Ct. App. Nov. 21, 1989); Nott Co. v. Eberhardt, A13-1061, 2014 WL 2441118 (Minn. Ct. App. June 2, 2014) (where only one other outside salesperson received the same compensation package as the defendant employee without signing the new non-compete agreement, the defending employee did not bargain for the agreement, and thus, the new compensation package could not constitute consideration as a matter of law under Freeman).
[54] Guidant Sales Corp. v. Baer, No. 09-CV-0358, 2009 WL 490052, at *2 (D. Minn. Feb. 26, 2009); cf. Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 131 (Minn. 1980) (finding independent consideration where the employee continued his employment for ten years after signing the agreement and advanced to a position that would not have been open to him if he had not signed the contract). But see Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn. Ct. App. 1993) (finding no independent consideration because the employee received nothing more than what he was promised in his initial employment contract).
[55] See Guidant Sales Corp., No. 09-CV-0358, 2009 WL 490052, at *3 (D. Minn. Feb. 26, 2009). (“[I]n deciding whether a non-compete agreement is supported by independent consideration, a court must consider the entire context, and not just the money”).
[56] See Sheehy v. Bodin, 349 N.W.2d 353, 354 (Minn. Ct. App.1984) (stating that past consideration cannot support a future promise); Menzies Aviation (USA), Inc. v. Wilcox, CIV. 13-2702 MJD/JJK, 2013 WL 5663187 (D. Minn. Oct. 17, 2013) (finding no independent consideration where employee received no promotion, special training, or other benefit in return for signing the non -compete).
[57] Softchoice, Inc. v. Schmidt, 763 N.W.2d 660 (Minn. Ct. App. 2009) (applying Missouri law).
[58] Freeman v. Duluth Clinic, Inc., 334 N.W.2d 626 (Minn. 1983).
[59] E.g., Bennett v. Storz Broad. Co., 134 N.W.2d 892 (Minn. 1965); Lemon v. Gressman, No. 08-00-1739, 2001 WL 290512 at *1 (Minn. Ct. App. Mar. 27, 2001); Gavaras v. Greenspring Media, LLC, CIV. 13-3566 ADM, 2014 WL 117557 (D. Minn. Jan. 13, 2014).
[60] E.g., Bennett, 134 N.W.2d at 898; Medtronic, Inc. v. Sun, Nos. C7-97-1185, C9-97-1186, 1997 WL 729168, at *3 (Minn. Ct. App., Nov. 25, 1997).
[61] Id.; Anytime Fitness, LLC v. Edinburgh Fitness LLC, CIV. 14-348 DWF/JJG, 2014 WL 1415081 (D. Minn. Apr. 11, 2014).
[62] Bennett, at 899-900.
[63] Id.
[64] Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127 (Minn. 1980).
[65] See Davies, 298 N.W.2d at 134; Dean Van Horn Consulting Assoc. v. Wold, 395 N.W.2d 405 (Minn. Ct. App. 1986); Ikon Office Solutions, Inc. v. Dale, 170 F. Supp.2d 892, (8th Cir. 2001); see also Klick v. Crosstown State Bank of Ham Lake, Inc., 372 N.W.2d 85 (Minn. Ct. App. 1985) (observing that courts are not required to modify non-compete agreements that appear unreasonable).
[66] Metro Networks Comm. v. Zavodnick, No. Civ. 03-6198, 2004 WL 73591 (D. Minn. Jan. 15, 2004) (enforcing a one-year restriction on competition in the Twin Cities metropolitan area); Universal Hosp. Serv., Inc. v. Hennessy, No. Civ. 01-2072 (PAM/JGL) 2002 WL 192564, (D. Minn. Jan. 23, 2002) (restricting an employee from competing within a 100-mile radius of the employer for one year).
[67] See, e.g., Ikon Office Solutions, Inc., 170 F. Supp.2d 892, at 895 (8th Cir. 2001) (reducing time period of noncompetition from five years to three years, because five years was too long, placed undue hardship on the employee, and did not serve any legitimate business needs of the former employer); Dean Van Horn, 395 N.W.2d at 410 (Minn. Ct. App. 1986) (modifying a three-year restriction to one year).
[68] Guercio v. Production Automation Corporation, 664 N.W.2d 379, 384, N.2 (Minn. Ct. App. 2003); Gavaras v. Greenspring Media, LLC, CIV. 13-3566 ADM, 2014 WL 117557 (D. Minn. Jan. 13, 2014) (“Blue-penciling this restrictive covenant does not make sense. Modifying this agreement would require more than modifying the duration and territorial scope. The Court would need to rewrite the agreement wholesale, and rewriting would require the Court to divine the parties’ intent at the time of contracting, seventeen years after the fact…”).
[69] See, e.g., Webb Publishing Co. v. Fosshage, 426 N.W.2d 445, 448 (Minn. Ct. App.1988) (citing Dahlberg Brothers, Inc. v. Ford Motor Co., 137 N.W.2d 314, 321‑22 (Minn. 1965)).
[70] Vital Images, Inc. v. Martel, No. Civ. 07-4195, 2007 WL 3095378 at *3 (D. Minn. Oct. 19, 2007) (eighteen months); Timm & Assoc., Inc. v. Broad, No. Civ. 05-2370, 2006 WL 3759753, at *4 (D. Minn. Dec. 21, 2006) (two years); Overholt Crop Ins. Serv. Co., Inc. v. Bredeson, 437 N.W.2d 698, 704 (Minn. Ct. App. 1989) (two years).
[71] See, e.g., recent Court of Appeals decision in Medtronic v. Hughes and St. Jude Medical, A10-998, 2011 WL 134973 (Minn. Ct. App. Jan. 18, 2011) (shortening non-compete from two years to one year, despite ruling in favor on all other issues in the case).
[72] Boston Scientific Corporation v. Kean, Civ. No. 11-419 (SRN/FLN), 2011 WL 853644 (D. Minn. March 9, 2011) (quoting Guidant Sales Corp v. Baer, No. 09-CV-0358 (PJS/FLN), 2009 WL 490052, at *4 (D. Minn. Feb. 26, 2009).
[73] See, e.g., Ring Computer Sys. v. Paradata Computer Networks, No. C4-90-889, 1990 WL 132615 (Minn. Ct. App. Sept. 18, 1990).
[74] See, e.g., Dynamic Air, Inc. v. Bloch, 502 N.W.2d 796, 800 (Minn. Ct. App. 1993) (observing that a non-compete agreement with no geographical limit “will often be held to be unreasonable”).
[75] See Medtronic v. Hedemark, No. A08-0987, 2009 WL 511760, at *3–5 (Minn. Ct. App. Mar. 3, 2009) (upholding a global restriction on competition for a multinational corporation, because the other restrictions in the non-compete were reasonable).
[76] Overholt Corp. Ins. Service Co., Inc. v. Bredeson, 437 N.W.2d 698 (Minn. Ct. App. 1989); Satellite Indus. Inc. v. Keeling, 396 N.W.2d 635 (Minn. Ct. App.1986).
[77] Dynamic Air, Inc. v. Bloch, 502 N.W.2d 796, 799 (Minn. Ct. App. 1993). (Instead of a per se rule, “[t]he covenant must be scrutinized as a whole to determine whether it is reasonable.” Id. at 800. Medtronic v. Hughes and St. Jude Medical, A10-998, 2011 WL 134973 (Minn. Ct. App. Jan. 18, 2011); Harley Auto. Group, Inc. v. AP Supply, Inc., CIV. 12-1110 DWF/LIB, 2013 WL 6801221 (D. Minn. Dec. 23, 2013) (voiding 300–mile non-compete restriction for a telemarketer because it is unreasonable and serves no legitimate business interest when looked at with regard to the nature and character of the employment. “Given the nature of their national telemarketing business, it is of no consequence as to where the calls originate. Requiring, through the non-compete, former employees to move outside an arbitrary 300–mile radius to place calls that could be made from anywhere is unreasonable and serves no legitimate business purpose.”)
[78] Cook Sign Co. v. Combs, No. A07-1907, 2008 WL 3898267, at *7 (Minn. Ct. App. Aug. 26, 2008) (enforcing a non-compete agreement restricting an employee from competing in three states in which the employer does business and has customers); Salon 2000, Inc. v. Dauwalter, No. A06-1227, 2007 WL 1599223, at *2 (Minn. Ct. App. June 5, 2007) (affirming a non-compete agreement restricting an employee from working as a stylist within a ten-mile radius of the employer’s business on the ground that customers will seek out the stylist rather than the services of the salon “if the stylist is sufficiently close” geographically to the salon); Madsen v. Spectro Alloys Corp., No. C7-98-225, 1998 WL 373067, at *2 (Minn. Ct. App. July 7, 1998) (concluding that a restriction from competing in “any market in which Spectro does business in the United States” was not unreasonably broad).
[79] Medtronic v. Hughes and St. Jude Medical, A10-998, 2011 WL 134973 *2 (Minn. Ct. App. Jan. 18, 2011) (world-wide scope was deemed reasonable because it was limited to certain cardiology products, and the confidential information that the employee obtained while working with the former employer would be potentially relevant to his sales of products at the new employer in any market).
[80] E.g., Gavaras v. Greenspring Media, LLC, CIV. 13-3566 ADM, 2014 WL 117557 (D. Minn. Jan. 13, 2014) (non-compete agreement between an employee and his former employer was unclear, vague, overly broad and incomplete, and thus was unenforceable, where the agreement, which lacked an effective date, was specifically conditioned on the terms of a written employment agreement, which did not exist).
[81] E.g., Ecolab, Inc. v. Gartland, 537 N.W.2d 291, 295 (Minn. Ct. App. 1995); Piche v. Braaten, A13-0406, 2014 WL 349712 (Minn. Ct. App. Feb. 3, 2014), rev. denied (Apr. 15, 2014) (terms of the non-compete provision were ambiguous, and therefore construed against the drafter).
[82] See Tenant Const., Inc. v. Mason, No. A07-0413, 2008 WL 314515 (Minn. Ct. App. Feb. 5, 2008) (upholding grant of attorney fees to employer in non-compete agreement); Tonna Heating Cooling, Inc. v. Waraxa, No. CX-02-368, 2002 WL 31687601 at *5 (Minn. Ct. App. Dec. 3, 2002) (denying an employer’s request for attorney fees, despite employee’s violation of the non-compete agreement, because the agreement did not provide for the payment of attorney fees); Barr/Nelson, Inc. v. Tonto’s, Inc., 336 N.W.2d 46, 53 (Minn. 1983).
[83] Sysdyne Corp. v. Rousslang, A13-0898, 2014 WL 902713 (Minn. Ct. App. Mar. 10, 2014), rev. granted (May 20, 2014) (denying attorney fees on damages action where no injunction was sought because the attorney-fee clause was ambiguous as to whether the employer was only entitled to attorney fees incurred in obtaining injunctive relief).
[84] Medtronic v. Hedemark, No. A08-0987, 2009 WL 511760, at *3–5 (Minn. Ct. App. Mar. 3, 2009); Harris v. Bolin, 247 N.W.2d 600, 603 (Minn. 1976).
[85] See, e.g., Burke v. Fine, 608 N.W.2d 909, 912 (Minn. Ct. App. 2000) (review denied June 13, 2000).
[86] Saliterman v. Finney, 361 N.W.2d 175, 178 (Minn. Ct. App. 1985).
[87] Inter-Tel, Inc. v. CA Commc’ns, Inc., No. Civ. 02-1864PAMRLE, 2003 WL 23119384, at *4 (D. Minn. Dec. 29, 2003).
[88] Cf. Western Form, Inc. v. Pickell, 308 F.3d 930 (8th Cir. 2002).
[89] Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 312 (Minn. 2003).
[90] Great America Leasing Corporation v. Dolan, Civ. No. 10-4631 JRTJJK, 2011 WL 334829 (D. Minn. Jan. 31, 2011) (citing Arizant Holdings, Inc. v. Gust, 668 F.Supp.2d 1194, 1202 (D. Minn. 2009).
[91] E.g. CH Robinson Worldwide, Inc. v. FLS Transportation, Inc., 772 N.W.2d 528 (Minn. Ct. App. 2009); See St. Jude Med. S.C., Inc. v. Biosense Webster, Inc., A13-0414, 2013 WL 5508389 (Minn. Ct. App. Oct. 7, 2013) (excellent recent summary of choice of law and forum selection issues and decisions).
[92] Id.; C. H. Robinson Worldwide, Inc. v. XPO Logistics, Inc., A13-1797, 2014 WL 2565690 (Minn. Ct. App. June 9, 2014).
[93] E.g., Menzies Aviation (USA), Inc. v. Wilcox, CIV. 13-2702 MJD/JJK, 2013 WL 5663187 (D. Minn. Oct. 17, 2013) (declining to apply more favorable Florida non-compete law where the record demonstrates no connection to Florida).
[94] E.g., Bahr v. Technical Consumer Products, Inc., 5:13CV1057, 2014 WL 1094426 (N.D. Ohio Mar. 17, 2014) (applying Minnesota law, claim failed because the bonus plan clearly reserved the employer’s right to modify, reduce, or eliminate any bonus payout under the plan at its sole discretion.); Chambers v. The Travelers Companies, Inc., 764 F. Supp. 2d 1071, 1087-88 (D. Minn. 2011), aff’d sub nom. Chambers v. Travelers Companies, Inc., 668 F.3d 559 (8th Cir. 2012) (a bonus policy that stated that bonuses were “discretionary awards used to reward superior performance” is too indefinite to form a binding unilateral contract.) Bley v. ClickShip Direct, Inc., No. 01–611 MJD/SRN, 2001 WL 1640093, at *1 (D. Minn. Dec.12, 2001) (“when a contract term leaves a decision to the discretion of one party, that decision is virtually unreviewable, unless that party is charged with fraud, bad faith or grossly mistaken exercise of judgment.” (citation omitted).
[95] T.B. Allen & Associates, Inc. v. Euro-Pro Operating LLC, CIV. 11-3479 JRT/JSM, 2013 WL 64605 (D. Minn. Jan. 4, 2013) (citation omitted).
[96] Id. (citations omitted).
[97] Id. citing Simpson v. Norwesco, Inc., 583 F.2d 1007 (8th Cir.1978).
[98] Id. at 1010–11.
[99] Id. at 1011.
[100] Id. at 1012. See also T.B. Allen, supra.
[101] Kvidera v. Rotation Engineering and Manufacturing Co.,705 N.W.2d 416 (Minn. App. 2005).
[102] Lee v Fresenius Medical Care, Inc., 741 N.W.2d 117, 127 (Minn. 2007); Brown v. Tonka Corporation, 519 N.W.2d 474 (Minn. App. 1994).
[103] Minn. Stat. §181.13.
[104] Minn. Stat. §181.14.
[105] Minn. Stat. §181.145.
[106] Minn. Stat. §325E.37.
[107] Although Minn. Stat. §181.145 only applies to independent contractors, the statute refers to the company, corporation, or other entity employing the independent contractor as the “employer.” Since an independent contractor is not technically “employed,” for clarity here, the word “employer” is replaced with “principal” in this section.
[108] Minn. Stat. §325E.37 states a further definition of a commission: “a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or part, by commission.” See Midwest Sports Marketing, Inc. v. Hillerich & Bradsby of Canada, Ltd., 552 N.W.2d 254 (Minn. App. 1996) (applying the §325E.37 definition to determine whether the individual was a commission salesperson).
[109]Minn. Stat. §181.145, subd. 3. See Minn. Stat. §181.145 (2) (d) for statutory rights to audit and other exceptions to this penalty.
[110] See Minn. Stat. §325E.37. Citations to subparagraphs are omitted.
[111] Minn. Stat. Section 181.03, subd. 1
[112] Id., subd 2.
[113] Id., subd. 3.
[114] Minn. Stat. Section 181.79, subd. 1
[115] Id., subd. 2.
[116] Minn. Stat. §181.171, subd. 1, 3; Galbraith v. U.S. Premise Networking Services, Inc., 2003 WL 23691204 *1 (D. Minn. 2003) (awarding attorney’s fees and costs to an employee where the employer violated the provision of Minn. Stat. § 181.13).
[117] Minn. Stat. §325E.37, subd. 5.
[118] Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 837 (Minn.2012) (emphases in original), quoting Lee v. Fresenius Medical Care, Inc., 741 N.W.2d 117, 125 (Minn.2007).
[119] Lee, 741 N.W.2d at 127–28.
[120] See, e.g., Holman v. CPT Corp., 457 N.W.2d 740, 743 (Minn.Ct.App.1990), review denied (Minn. Sept. 20, 1990; Sherwood v. Investors Bank Corp., No. CX–96–2370, 1997 WL 259980, at *2 (Minn. Ct. App. May 20, 1997); Knutson v. Schwan’s Home Serv., Inc., 711 F.3d 911, 916-17 (8th Cir. 2013); O’Neal v. Niscayah, Inc., 10-4434 RHK/JJG, 2011 WL 381768 (D. Minn. Feb. 1, 2011).
[121] See, e.g., Reiter v. Recall Corp., 542 F. Supp.2d 945 (D. Minn. 2008) (salesperson was an employee, not an independent contractor, but was not entitled to a commission on an account secured prior to termination but received after termination when the agreement clearly stated that commissions are earned upon receipt of payment).
[122] See Ehlen v. Hanratty & Associates, Inc., 2009 WL 3255399 (Minn. App. Oct. 13, 2009) (where insurance policy was unclear whether the customers would continue to accept the policies after the [independent contractor] was terminated because they could decline to pay the monthly policy premiums at any time during the policies’ twelve-month period, the commissions were not earned for purposes of Minn. Stat. §181.145).
[123] Minn. Stat. §325E.37, subd. 5.
[124] Id. For example, if the governing sales representative agreement states that these goods will not be includable in the calculation of commissions, that provision will be enforced. See, e.g. Reiter v. Recall Corp., 542 F. Supp.2d 945 (D. Minn. 2008) (holding that the salesperson was not entitled to a commission on an account secured prior to termination but received after termination when agreement clearly stated that commissions are earned upon receipt of payment).
[125] See discussion on Promissory Estoppel in Section 1.D of this article.
[126] Fiebelkorn v. IKON Office Solutions, Inc., 668 F.Supp.2d 1178, 1186 (D. Minn. 2009).
[127] Holman v. CPT Corp., 457 N.W. 2d. 740 (Minn. Ct. App. 1990).
[128] Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 838 (Minn.2012).
[129] Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn.Ct.App.2001).
[130] First Nat’l Bank v. Ramier, 311 N.W.2d 502, 504 (Minn.1981).
[131] Holman v. CPT Corp., 457 N.W.2d 740, 745 (Minn.Ct.App.1990) (citation omitted).
[132] Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 838 (Minn.2012); see also Motley v. Homecomings Fin., LLC, 557 F.Supp.2d 1005, 1014 (D.Minn.2008) (plaintiffs “may plead their unjust-enrichment claim in the alternative to their breach-of-contract claim without fear of dismissal”); M.M. Silta, Inc. v. Cleveland Cliffs, Inc., 616 F.3d 872, 880 (8th Cir.2010) (quoting U.S. Fire Ins. Co. v. Minn. State Zoological Bd., 307 N.W.2d 490, 497 (Minn.1981)).
[133] See Ventura v. Titan Sports, Inc., 65 F.3d 725, 734 (8th Cir.1995) (discussing Minnesota law allowing recovery for the value of services rendered less the benefits received by the plaintiff); Toomey v. Dahl, No. 14-CV-3249 JNE/TNL, 2014 WL 5496617, at *13-14 (D. Minn. Oct. 30, 2014) (discussing Minnesota law regarding unjust enrichment).
[134] Rosenberg v. Heritage Renovations, LLC, 685 N.W. 2d. 320, 324 (Minn. 2004).
[135] See Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320, 327 (Minn. 2004); Raddatz v. Northland Development Co. of Minneapolis, Inc., 352 N.W.2d 474, 478 (Minn. Ct. App.1984); N. Coast Technical Sales, Inc. v. Pentair Technical Products, Inc., 12-CV-1272 PJS/LIB, 2013 WL 785941 (D. Minn. Mar. 4, 2013); MRO Indus. Sales, LLC v. Carhart-Halaska Int’l, LLC, CIV. 12-2401 MJD, 2013 WL 5781469 (D. Minn. Oct. 25, 2013).
[136] N. Coast Technical Sales, Inc., at *7.
[137] MRO Indus. Sales, LLC, supra.
[138] St. Cloud Aviation, Inc. v. Hubbell, 356 N.W.2d 749, 751 (Minn. Ct. App. 1984) (citation omitted); see also St. Anthony Motor Co. v. Patterson, 175 Minn. 624, 625, 221 N.W. 719, 720 (Minn. 1928) (citing same rule and adding that “[i]n the absence of either an express or implied agreement or promise to repay such excess, the employer has no remedy against the employee, even though the contract in terms provides that there shall be settlements between them monthly”); see Custom Communications, Inc. v. Vega, A10-1123, 2011 WL 1466385 (Minn. Ct. App. April 19, 2011).
[139] See Dougan v. Niedermaier, 419 N.W.2d 112 (Minn. Ct. App. 1988) (noncompliance with Minn. Stat. §181.145 “results in penalties to be paid appellant thereby making appellant the prevailing party in this matter. As prevailing party, appellant is entitled to attorney’s fees.” Id. at 115.)
[140] Id.
[141] Minn. Stat. § 302A.751 (close corporations); Minn. Stat. § 322B.833 (limited liability companies); Minn. Stat. § 323A.0404 (partnerships); and Minn. Stat. § 321.0408 (limited liability partnerships).
[142] E.g. Triple Five of Minnesota, Inc. v. Simon, 404 F.3d 1088, 1095 (8th Cir. 2005) (citing Venier v. Forbes, 25 N.W.2d 704, 708 (Minn. 1946)).
[143] Westland Capitol Corp. v. Lucht Eng’g Inc., 308 N.W.2d 709, 712 (Minn. 1981).
[144] Pedro v. Pedro, 489 N.W.2d 798, 801 (Minn. App. 1992) (“Pedro II”); Pedro v. Pedro, 463 N.W.2d 285, 288 (Minn. App. 1990) (“Pedro I”).
[145] Pedro II, 489 N.W.2d at 801 (quoting Prince v. Sonnesyn, 25 N.W.2d 468, 472 (Minn. 1946)).
[146] Berreman v. West Publishing Co., 615 N.W.2d 362, 369 (Minn. App. 2000), rev. denied (Minn. Sept. 26, 2000).
[147] Klein v. First Edina Nat’l Bank, 196 N.W.2d 619, 622 (Minn. 1972); Berreman, 615 N.W.2d at 371; Fewell v. Tappan, 27 N.W.2d 648, 654 (Minn. 1947).
[148] Gunderson v. Alliance of Computer Professionals, 628 N.W.2d 173, 186 (Minn. App. 2001).
[149] Berreman, 615 N.W.2d at 370; preferential financial treatment, Gunderson, 628 N.W.2d at 185).
[150] Pedro II at 801-802.
[151] Pedro I; Pedro II.
[152] Pedro I at 289; see also McGrath v. MICO, Inc., A11-1087, 2012 WL 6097116 (Minn. Ct. App. Dec. 10, 2012), rev. denied (Feb. 19, 2013).
[153] See, e.g. I.R.C. §3509.
[154] Minn. Stat. § 176.021; Minn. Stat. § 176.011, subd. 9; Minn. Stat. § 176.041.
[155] Minn. Stat. § 268.035, subd. 15 (1). Regardless of classification, certain types of salespeople are ineligible for unemployment benefits. Minn. Stat. §268.035, subd. 20 (29) (a real estate salesperson other than a corporate officer, who is paid on commissions); Minn. Stat. §268.035 subd. 15 (5) (ii) (certain types of traveling salespersons); Minn. Stat. §268.035 (“direct sellers” who are paid on commissions).
[156] See 29 U.S.C. §§ 206, 207; Minn. Stat. § 177.23 (7); Minn. Stat. § 177.25. Regardless of classification, certain types of salespeople are ineligible for overtime pay. 29 U.S.C. §213 (a) (1); Minn. Stat. §177.23 (7) (6) (outside salespersons); Minn. Stat. §177.25, subd. 3. (motor vehicle salespersons).
[157] E.g., Minn. Stat. § 363A.03, subd. 1.
[158] E.g., 29 U.S.C. § 152(3)’ vicarious liability, see Laurie v. Mueller, 78 N.W.2d 434 (Minn. 1956); Urban ex rel. Urban v. American Legion Post 184, 695 N.W.2d 153, 160 (Minn. Ct. App. 2005).
[159] See Minn. Stat. § 181.790; Minn. Stat. §302A.521; Minn. Stat. §317.521; Minn. Stat. §322B.699.
[160] E.g., GAO Report 07-859 (May 8, 2007); IRS Headline Volume 280 (Nov. 9, 2009); GAO Report 09-717 at 11-13; Budget of the U.S. Government, Fiscal Year 2011, at 100; http://www.treasury.gov/tigta/auditreports/2013reports/201330058fr.pdf; Office of the Legislative Auditor “Misclassification of Employees as Independent Contractors.” Evaluation Report Nov. 2007.
[161] Office of the Legislative Auditor, “Misclassification of Employees as Independent Contractors”; Id at 33-36.
[162] Moore Associates, LLC. v. Commissioner of Economic Security, 545 N.W.2d 389, 393 (Minn. App. 1996); Speaks, Inc. v. Jensen, 243 N.W.2d 142,145 (1976).
[163] 29 U.S.C. 216(b); Minn. Stat. § 177.27.
[164] E.g., Minn. Stat. § 177.27.
[165] Minn. Stat. § 177.32 subd. 2.
[166] Minn. Stat. § 177.32
[167] IR-2004-47, April 5, 2004.
[168] Tax Relief and Health Care Act of 2006 (P.L. 109-432).
[169] Minn. Stat. §176.181, subd. 3.
[170] Minn. Stat. § 176.181, subd. 5.
[171] Minn. Stat. § 268.184.
[172]See IRS Publication 15-A, 2011 Edition, pages 4-9; Internal Revenue Service, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Behavioral-Control; /Financial-Control and /Type-of-Relationship.
[173] IRS Rev. Rul. 87-41 (IRS 1987).
[174] Id.
[175] United States v. Silk, 331 U.S. 704, 67 S. Ct. 1463 (1947) (“the courts will find that degrees of control, opportunities for profit or loss, investment in facilities, permanency of relation and skill required in the claimed independent operation are important for decision”.
[176] Brock v. Mr. W Fireworks, 814 .2d 1042 (5th Cir.), cert. denied, 484 U.S. 924 (1987).
[177] See Brock v. Superior Care, 840 F.2d 1054 (2d Circ. 1988); Donovan v. Dial America Mktg., 757 F.2d 1376 (3d. Cir.), cert denied, 474 U.S. 919 (1985); Secretary of Labor, U.S. Dept. of Labor v. Lauritzen, 835 F.2d 1529 (7th Cir. 1987); Donovan v. Sureway Cleaners, 656 F.2d 1368 (9th Cir. 1981); Dole v. Snell, 875 F.2d 802 (10th Cir. 1989).
[178] Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989); Nationwide Mut. ins. Co. v. Darden, 503 U.S. 318 (1992).
[179] Goodnature v. Mower County, 558 N.W.2d 19, 21 (Minn. Ct. App. 1997).
[180] Id.; see also Speaks, Inc. v. Jensen, 243 N.W.2d 142, 144 (Minn. 1976) (observing that an employee “undertakes to achieve a given result under an arrangement with another who has authoritative control over the manner and means in which and by which the result shall be accomplished” while an independent contractor “agrees to achieve a given result but is not subject to the orders of another as to the method or means to be used.” (internal quotation omitted) (emphasis added)).
[181]Minnesota Rule 3315.0555 – Minnesota Department of Employment and Economic Development; Minnesota Rule 5224.0210; 5224.0320; 5224.0330; 5224.0340 Minnesota Department of Labor (including workers’ compensation).
[182] See also Minnesota Rule 5224.0340 (listing other factors to determine independent contractor status); Minnesota Rule 5224.0330 (discussing the issue of the control of an individual’s performance).
[183] Guhlke v. Roberts Truck Lines, 268 Minn. 141, 143, 128 N.W.2d 324, 326 (1964).
[184] Minn. R. 3315.0555, subp. 1 (2009).
[185] Minn. R. 3315.0555, subp. 2 (2009); St. Croix Sensory Inc. v. Dept. of Employment and Econ. Dev., 785 N.W.2d 796 (Minn. Ct. App. 2010).
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