Wednesday, September 15, 2021

Court Strikes Non-Compete and Non-Solicitation Provisions

 In a financial services industry dispute, the Eighth Circuit Court of Appeals recently reversed a district court's enforcement of a non-compete agreement and non-solicitation agreement in employment contracts. The appellants were a financial advisor and her new financial services firm. The appellee that lost on appeal was the financial advisor's former employer.

The financial advisor was Cara Miller. When she worked for Honkamp Krueger Financial Services, she signed an employment agreement that included a non-compete and non-solicitation agreement and then an Agreement Ancillary to Employment that failed to include a non-compete provision. Miller voluntarily terminated her employment when Honkamp Krueger was purchased by another firm. She wisely sent a letter terminating her employment agreement rather than just her employment. She sought a declaratory judgment in the district court. Honkamp Kruger counterclaimed, seeking a preliminary injunction against her, and prevailed.  

The Court of Appeals took different approaches to the non-compete and non-solicitation agreement[1]. The Court concluded that the non-compete agreement ended when Miller provided written notice that the employment contract had ended. The Court found that the District Court's application of the non-solicitation agreement was void against public policy in that it prohibited accepting clients as well as soliciting them. Two quotes from the opinion are worthy of repetition: 1) "…non-compete agreements are 'strictly' constructed against the one seeking to restrain another from pursuing his profession, business, or employment", and 2) "…a contract cannot prevent former employees from accepting clients of their former employers because clients are not parties to the contract and should be allowed to choose with whom they want to do business." Food for thought.

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