Opinion
No. C6-01-731.
Filed December 26, 2001.
Appeal from the District Court, Dakota County, File No. C0008077.
Gregory L. Peters, Robin N. Kelleher (for appellant)
Wilbur W. Fluegel and William J. Kranz (for respondent)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
The district court granted summary judgment, ruling as a matter of law that respondent, a former employee of appellant, did not breach his duty of loyalty to his employer and did not tortiously interfere with his employer's contracts; and that a covenant-not-to-compete in respondent's employment contract lacked consideration and was therefore unenforceable. Because we find no genuine fact issue as to the tortious interference claim but we find fact issues as to the remaining claims, we affirm in part, reverse in part, and remand for trial. We also grant respondent's motion to strike materials not properly a part of the record.
FACTS
Appellant Tappe Construction Co. is a building contractor. In January 1997, Tappe hired respondent Rodney Siedow, a carpenter, with the intent that he would become a carpentry-crew foreman. Tappe did not ask Siedow to sign an employment contract at the time of his hire, nor did Tappe tell Siedow that he would have to sign a contract in the future. After a period of training, Tappe gave Siedow the position of foreman.
In March 1998, Scott Sample, Tappe's production manager, conducted the first of two performance reviews of Siedow's work. At this session, Sample asked Siedow to sign an "Employment Agreement" for a one-year term. Among other things, the agreement provided that the "employment is at-will and both employment and this [a]greement may be terminated by either party at any time and for any reason"; that Siedow would receive "an initial monthly salary" in a particular amount, "which amount may be increased, reduced or discontinued at any time at the sole discretion of the Employer;" and that during the term of the agreement and for twelve months after the termination of the employment, Siedow would be prohibited from soliciting, offering to employ, or employing anyone employed by or formerly employed by Tappe, and from requesting, advising, or enticing any such person to leave Tappe's employment. Siedow signed the agreement in March 1998.
At his deposition, Sample testified that foremen "are handed these employment agreements once a year at the review. They are required to sign the agreement before their new wage for the next year goes into effect." Sample also testified that if it is the first time the foreman is presented with the agreement, it is his practice to call the foreman's attention to the covenant-not-to-compete.
Sample conducted Siedow's second performance review in March 1999, and asked Siedow to sign an Employment Agreement identical to the 1998 agreement except for the effective dates of the agreement and the salary, which was an increase over Siedow's 1998 wage.
Sample told Siedow that he had to sign the agreement in 1999, but there was no discussion of the consequences if Siedow declined to sign. In his deposition testimony, Siedow responded to questions about the consequences of failing to sign the agreement:
Q. And Mr. Sample told you that the raise would not be effective until you signed this document. Correct?
A. I don't know if that's what he said for sure.
Q. So he could have said that?
A. Maybe.
In an affidavit, Siedow stated that Sample did not explain the consequences of failing to sign the agreement:
Mr. Sample requested only that I sign the document. He did not explain what Tappe Construction Company would do if I did not sign the document. I signed the document when it was presented to me in Mr. Sample's presence. I immediately returned the document to Mr. Sample. I did not read the document before I signed it. I was not given a copy of the document after I signed it.
Under the 1999 agreement, Siedow's employment term would continue until March 2000, if neither party terminated the employment earlier. Siedow resigned on January 26, 2000. Prior to mid-February 2000, he started his own carpentry business and began to hire employees on February 15, 2000.
Among Siedow's hires were Rawlin Nordquist, who had worked for Tappe until 1998; and Jeff O'Brien, Chuck Thompson, and Jon Harlander, all of whom were working on Siedow's crew at Tappe on January 26, and who quit their jobs after Siedow left. Siedow contends that he did not solicit any of these carpenters to work for him but rather they made individual and independent decisions to do so.
There is evidence in the record that Siedow offered jobs to two carpenters then working for Tappe. Siedow made the offers to Brodie Schaefer on January 29, 2000, and to Brian Ziccardi on January 31, 2000. Both declined Siedow's offers.
There is also evidence in the record that at some point while Siedow was working for Tappe, Rick Toston, a representative of a builder known as Reliable Homes, gave Siedow his business card and asked him to pass it on to Tappe's president so that Toston could hire Tappe. In November or December 1999, Siedow contacted Toston, told him that he had left Tappe, that he had his own crew and was looking for work. On approximately January 20, 2000, Siedow submitted a bid to Toston for work to be performed by Siedow's company.
In early February 2000, and again in March 2000, Tappe warned Siedow about violating the covenant-not-to-compete. Eventually, Tappe sued Siedow on theories of breach of contract, breach of the duty of loyalty, and tortious interference with contract. Tappe sought injunctive relief to enforce the covenant-not-to compete and compensatory damages.
Siedow moved for summary judgment on all claims. Tappe moved for partial summary judgment on the breach of contract claim. The district court granted Siedow's motion and denied Tappe's motion, ruling that (1) the restrictive covenant is unenforceable for lack of consideration; (2) there was no tortious interference with contract because the other employees had already left the employ of Tappe, and thus there were no contracts to be interfered with; and (3) an employee has a duty of loyalty to his employer during the employment, but Siedow had left Tappe before he contacted any Tappe employees.
Tappe challenges all three rulings on appeal.
DECISION
On appeal from summary judgment, it is the function of the appellate court to determine whether there exists a genuine issue of material fact for trial and whether a party is entitled to judgment as a matter of law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). When reviewing a summary judgment, the appellate court need not defer to the district court's decisions regarding legal issues. Zacharias v. Minn. Dep't. of Natural Res., 506 N.W.2d 313, 316 (Minn.App. 1993), review denied (Minn. Nov. 16, 1993).
1. Breach of Contract
Tappe contends that Siedow violated the covenant-not-to-compete contained in the 1999 Employment Agreement and thereby breached his contract with Tappe.
There does exist a genuine issue of material fact as to whether Siedow solicited Tappe employees within the term covered by the restrictive covenant. But the district court based its decision solely on the legal issue of whether the covenant was supported by sufficient consideration to make it enforceable. We review issues of law de novo. Powell v. MVE Holdings, Inc., 626 N.W.2d 451, 463 (Minn.App. 2001), review denied (Minn. July 24, 2001).
Siedow signed the agreement containing the covenant-not-to-compete after Tappe had hired and trained him. Where the restrictive covenant is not ancillary to the employment contract, it is enforceable only if it is supported by independent consideration. Nat'l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982). Tappe contends that "Siedow received continued employment and a raise in exchange for the * * *" covenant, and "[i]f Siedow had refused to sign * * * he would have received no pay raise."
Continued employment alone is not sufficient consideration to support a covenant-not-to-compete that is not ancillary to the employment contract. Id. at 741. Furthermore, there is no evidence in this record that Siedow's job would have been terminated had he refused to sign the agreement.
In its ruling the district court said:
In this instance there is no showing that [Siedow] received anything save and except his normal increase in salary when he signed the employment contract from April, 1999, to the end of March, 2000, the employer also retained the right to increase or reduce the compensation at its sole discretion at any time.
We find nothing in the record to suggest that the wage stated in the 1999 agreement represented Siedow's normal increase in salary. On the contrary, the record contains Sample's admission that a foreman must sign the agreement before the increased wage will go into effect. As stated in Sanborn Mfg. Co. v. Currie, "There is no independent consideration unless the employer provides real benefits beyond those already obtained by the employee in a previous contract." Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.App. 1993) (citation omitted). Siedow's increased wage, which is not disputed, is a real benefit beyond the wage Siedow was entitled to receive under the 1998-99 contract. The salary increase, being tied specifically to the agreement containing the covenant-not-to-compete, was sufficient independent consideration for that covenant. The district court erred in holding otherwise.
Finally, both the district court and the respondent rely on Sanborn as support for the proposition that no independent consideration exists here. Sanborn is factually inapposite for, as the appellate court pointed out, neither the employee's salary increase nor his promotion was "attributable to anything other than the performance that was expected of him under the initial employment agreement." Id.
Tappe is entitled to a trial on the claim of breach of contract.
2. Breach of Duty of Loyalty
Tappe next contends that, when Siedow offered jobs to current Tappe employees and solicited business from Rick Toston, he breached his common-law duty of loyalty to his employer. The district court ruled that Siedow had already left his employment with Tappe before he contacted any employees and that the duty of loyalty had ceased upon the termination of Siedow's employment.
The law provides that, while employed, an employee has a duty of loyalty to the employer and is prohibited from soliciting the employer's customers for the employee's own business or otherwise competing with the employer. Rehab. Specialists, Inc. v. Koering, 404 N.W.2d 301, 304 (Minn.App. 1987). However, an employee who is contemplating leaving an employer may, while still employed, prepare to enter into competition with the employer. Id. There is no bright line between prohibited solicitation and permissible preparation for competition. Id. There is evidence in the record that Siedow told Toston that he would bring a skilled crew to any job for Toston and that Siedow submitted a bid to Toston before Siedow had left his employment with Tappe. Whether an employee's actions constitute a breach of the duty of loyalty "is a question of fact to be determined based on all the circumstances of the case." Id. at 305. The district court erred in ruling as a matter of law that Siedow did not breach his duty of loyalty to Tappe, and Tappe is entitled to a trial on this claim.
3. Tortious Interference with Contract
Tappe's final claim is that Siedow tortiously interfered with Tappe contracts by attempting to hire or hiring Tappe employees, and by doing work for a company known as Bream Construction.
To recover on a claim of tortious interference with contract a party must prove five elements: (1) the existence of a contract; (2) the alleged wrongdoer's knowledge of the contract; (3) the wrongdoer's intentional procurement of a breach of that contract; (4) the breach was without justification; and (5) damages. Oak Park Dev. Co. v. Snyder Bros. of Minn., Inc., 499 N.W.2d 500, 505 (Minn.App. 1993). A claim of tortious interference with contract applies to at-will employment. Nordling v. N. States Power Co., 478 N.W.2d 498, 505 (Minn. 1991). However, there is no tortious interference with an employment contract unless the third party improperly entices employees away from their employer. Hough Transit, Ltd. v. Nat'l Farmers Org., 472 N.W.2d 358, 361 (Minn.App. 1991). See also Snyder Bros., 499 N.W.2d at 505-06 (finding no wrongful means used and no tortious interference where third-party competitor simply made better offer and employee terminated at-will employment).
The district court held that the employees whom Siedow contacted had left Tappe's employ before the contacts were made. That indeed is the state of the record except as to Dan Malkerson, the fourth member of Siedow's crew when Siedow quit.
According to Sample, Siedow offered Malkerson a job, but Malkerson declined and continued to work for Tappe. Thus, Siedow did not procure the severance of Malkerson's employment and Tappe could not therefore establish an essential element of its tortious interference claim as to Malkerson.
Tappe also alleges that Siedow performed work for Tappe customers, such as Bream Construction, prior to leaving his employment. Tappe fails to cite anything in the record that would raise a fact issue as to the tortious interference claim for work Siedow allegedly did for Bream or other unidentified customers. As to such alleged work, we find only Siedow's affidavit in which he states that Tappe permitted its crews to do "side jobs," and in his deposition testimony Siedow stated that he did a "side job" for Bream while employed by Tappe.
We find no genuine issue of material fact on Tappe's claim that Siedow tortiously interfered with contracts. Therefore, summary judgment on that claim was appropriate.
4. Motion for Reconsideration
Tappe contends that the district court abused its discretion by denying Tappe permission to make a motion for reconsideration of the court's summary judgment rulings. Our review of the motion satisfies us that the district court did not abuse its discretion in declining to hear the motion to reconsider.
5. Motion to Strike
Siedow moved to strike from Tappe's brief and appendix papers not filed in the district court before the summary judgment hearing on February 16, 2001.
An appellate court may not base its decision on matters outside the record. Thiele v. Stich, 425 N.W.2d 580, 582-83 (Minn. 1988). The record before us consists of pertinent documents submitted before the hearing on the summary judgment motions. Materials offered afterward and not accepted by the district court are outside this record and the motion as to such materials is granted.