This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2006).
STATE OF MINNESOTA
IN COURT OF APPEALS
A07-0421
John H. Witzke,
Respondent,
vs.
Mesabi Rehabilitation Services Inc.,
Appellant.
Filed February 5, 2008
Reversed and remanded
Ross, Judge
St. Louis County District Court
File No. 69DU-CV-06-1546
Mitchell J. Brunfelt, Colosimo, Patchin, Kearney & Brunfelt, Ltd., 301 Chestnut Street,
Virginia, MN 55792 (for appellant)
John D. Kelly, Catherine E. Martineau, Hanft Fride, 1000 U.S. Bank Place, 130 West
Superior Street, Duluth, MN 55802-2094 (for respondent)
Considered and decided by Dietzen, Presiding Judge; Lansing, Judge; and Ross,
Judge.
UNPUBLISHED OPINION
ROSS, Judge
Mesabi Rehabilitation Services, Inc., appeals from the district court’s summary
judgment decision in favor of a former employee upon the court’s holding that restrictive
covenants in the parties’ employment contract are void for lack of consideration. John
Witzke worked for Mesabi for several months before Mesabi asked him to sign an
employment contract containing the restrictive covenants, including a noncompetition
agreement and a nonsolicitation agreement. Witzke then received support, training, and
promotions at Mesabi. But seventeen years after he signed the contract, Witzke left
Mesabi to start his own rehabilitation services company. Because the postagreement
professional enhancements Mesabi afforded Witzke constitute sufficient consideration,
we reverse the district court’s summary judgment decision and remand for further
proceedings.
FACTS
Mesabi Rehabilitation Services, Inc., provides vocational rehabilitation services to
injured persons who qualify for services under the Worker’s Compensation Act. Mesabi
receives client referrals primarily from attorneys representing worker’s compensation
claimants. Its service area includes roughly all parts of Minnesota north of the Twin
Cities. Its principal office is in Embarrass and its other offices are in Duluth, Hibbing,
and Bemidji.
Jim Jackson, a qualified rehabilitation consultant (QRC), founded Mesabi in
March 1988 and hired John Witzke two months later to serve part time as a jobplacement specialist. Witzke had previously been a delivery truck driver for a soft-drink
distributor.
Jackson had met Witzke and became his rehabilitation consultant after
Witzke suffered a work-related back injury. At the time Mesabi hired Witzke, he had left
his truck driving job and was working as a security guard, and Jackson was concluding
his services as Witzke’s rehabilitation consultant. Witzke, who was not a QRC and had
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no background or training in rehabilitation services, was hired to call employers to
determine whether they had suitable work for which Mesabi clients could be referred for
employment. Mesabi paid him $15 an hour without benefits. Witzke provided no
rehabilitation services.
In January 1989, approximately eight months after Witzke began working at
Mesabi, Jackson presented him with a draft employment agreement, which Witzke signed
after the parties modified one of its provisions in handwriting.
The employment
agreement contained two restrictive covenants: one regards solicitation, and the other
regards competition.
The nonsolicitation provision prohibits Witzke from soliciting
Mesabi’s clients. The noncompetition provision bars Witzke from “performing any
rehabilitation, placement, or consulting professional services” within a 150-mile radius of
Virginia, Minnesota, for three years after Witzke leaves Mesabi. This area includes most
of Minnesota north of the Twin Cities.
Witzke excelled at Mesabi and transitioned into a QRC after he signed the
agreement. With Mesabi’s support, Witzke began working as a QRC intern in 1990
while he pursued his master’s degree. Jackson reviewed and signed Witzke’s internship
reports and provided him with hands-on training. Mesabi paid Witzke’s attendance fees
for professional conferences and paid some of his tuition. Witzke became a licensed
QRC after he completed his QRC internship, and he received his master’s degree in 1992.
Mesabi paid his annual QRC registration fees and his continuing education expenses.
Mesabi also bought Witzke’s professional liability insurance. Witzke worked out of
Mesabi’s Duluth office as a QRC and Mesabi also paid expenses for him to maintain an
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office in his home outside Duluth. During this time, Witzke kept contact with many
attorneys in the area, who were Mesabi’s primary referral source. Clients from these
referrals worked directly with Witzke as their QRC.
In May 2006 Witzke left Mesabi to start his own rehabilitation services company.
On the day he gave Mesabi his two-weeks’ notice of his intention to quit, he also sent
letters to the clients he had served notifying them that he was leaving Mesabi and that
they could choose to continue working with him or to stay with Mesabi. At least thirtyfour of Witzke’s thirty-eight clients left Mesabi. Witzke’s new company, called Witzke
and Associates Vocational Rehabilitation Services, competes directly with Mesabi to
provide QRC services to clients in the same geographic area.
Witzke brought an action in district court seeking a declaration that the
noncompetition clause in his employment agreement with Mesabi is invalid and
unenforceable.
Mesabi filed counterclaims for breach of the noncompetition and
nonsolicitation clauses of the contract and misappropriation of trade secrets under
Minnesota Statutes section 325C.01 (2006). The district court granted Witzke’s motion
for summary judgment upon deciding that the agreement is invalid and unenforceable for
lack of consideration. The district court ruled in Witzke’s favor on that basis without
discussing Mesabi’s counterclaims. This appeal follows.
DECISION
Mesabi challenges the district court’s summary judgment decision. In reviewing a
grant of summary judgment, we consider de novo the application of law when there are
no issues of material fact. 80 Designs, Inc. v. Rollerblade, Inc., 620 N.W.2d 48, 53
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(Minn. App. 2000), review denied (Minn. Feb. 21, 2001). Mesabi raises multiple issues
on appeal, asking us to decide on the merits whether Witzke violated the nonsolicitation
agreement and whether he misappropriated Mesabi’s trade secrets.
But Mesabi
accurately acknowledges that the district court never addressed these questions. Neither
will we. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (“A reviewing court
must generally consider only those issues that the record shows were presented and
considered by the trial court in deciding the matter before it.” (quotation omitted)). It is
clear to us that the principal question on appeal is whether the district court erred by
ruling that the employment agreement’s restrictive covenants were unenforceable for lack
of consideration. There are no disputed facts regarding this issue, and whether a contract
is supported by consideration is a question of law. Brooksbank v. Anderson, 586 N.W.2d
789, 794 (Minn. App. 1998), review denied (Minn. Jan. 27, 1999).
Contracts generally are valid only if they include consideration.
Franklin v.
Carpenter, 309 Minn. 419, 422, 244 N.W.2d 492, 495 (1976). Employment agreements
are contracts. Kvidera v. Rotation Eng’g & Mfg. Co., 705 N.W.2d 416, 421 (Minn. App.
2005). When an employment agreement includes a restrictive covenant, such as a clause
prohibiting an employee to solicit the employer’s clients or to compete with the
employer’s business, and the restrictive covenant is not ancillary to an employment
agreement, there must be independent consideration for the covenant. Sanborn Mfg. Co.
v. Currie, 500 N.W.2d 161, 164 (Minn. App. 1993). A restrictive covenant is not
ancillary to an employment agreement when it is presented to an employee after the
employee begins working. Nat’l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740
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(Minn. 1982).
Because Mesabi already employed Witzke when they entered the
employment agreement, the agreement’s restrictive covenants are not ancillary to
Witzke’s employment. See Sanborn Mfg. Co., 500 N.W.2d at 164. The restrictive
covenants therefore require consideration. Id.
Mesabi contends that Witzke’s continuation of employment after entering the
employment agreement constitutes sufficient consideration to validate the restrictive
covenants.
In some situations, the continuation of employment can serve as
consideration. Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130 (Minn.
1980). In Davies, the supreme court found sufficient consideration in support of a
noncompetition agreement because the employee had continued in employment ten years
after the agreement, advanced to a sales position that would not have been available to
him had he not signed the agreement, received training from the company, received the
company’s support in his professional license applications, and was given sole
responsibility for many of the company’s customers. Id. at 131. We later applied Davies
and explained that the continuation of postagreement employment can be consideration
for the agreement if the employee is employed for many years, advances within the
company, and is given increased responsibilities. Satellite Indus., Inc. v. Keeling, 396
N.W.2d 635, 639 (Minn. App. 1986), review denied (Minn. Jan. 21, 1987).
This case is materially indistinguishable from Satellite Industries. In Satellite
Industries, an employee, Keeling, was already working when he signed a restrictive
covenant. Id. at 637. Keeling read and signed the agreement without discussion. Id.
Although Keeling began as a sales representative, over the next eleven years he was
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promoted to sales manager and eventually to vice president of sales. Id. at 638–39.
Keeling’s employer provided him with product, industry, and marketing training. Id. at
639. We held that these long-term career advantages, which occurred after Keeling
signed the employment agreement, constituted consideration for the restrictive covenant
included in the posthire agreement.
Id.
We reiterated the general rule that
“[c]ontinuation of employment alone can be used to uphold coercive agreements, but the
agreement must be bargained for and provide the employee with real advantages.” Id.
The bargaining in Satellite Industries was merely implied and assumed based on
the various benefits the employee later received. Here, the bargaining is both express and
implied.
Witzke’s employment contract includes a hand-written exception to the
noncompetition agreement to allow Witzke to be employed by a local school district to
perform rehabilitation services.
This exception to the typed contract demonstrates
bargaining and shows that Witzke and Mesabi contemplated that Witzke would advance
beyond his extant role as job-placement specialist into the role of a QRC to perform
rehabilitation services.
Witzke did advance within Mesabi, gaining significant
professional advantages through the company. After signing the agreement, Witzke not
only continued employment with the company for seventeen years, he was professionally
supported by Mesabi and advanced within it both in salary and responsibility. He moved
from job-placement specialist earning $15 hourly to QRC earning approximately $41
hourly. Mesabi maintains that it relied on the restrictive covenants when promoting
Witzke and Witzke offers neither evidence to refute this claim nor persuasive argument
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that these professional advances did not qualify as valuable advantages. We hold that
Witzke’s restrictive covenants are supported by consideration.
Witzke argues that the restrictive covenants are nonenforceable regardless of
consideration because they are unnecessary to protect Mesabi’s legitimate business
interests and are of a scope and duration that are unreasonable as a matter of law. Witzke
also contends that Mesabi failed to identify any genuine trade secret that was
misappropriated by Witzke in violation of the Uniform Trade Secrets Act. In granting
summary judgment, the district court did not address these issues, and we offer no
opinion concerning them. We reverse the decision and remand for further proceedings,
including consideration of the remaining questions presented at summary judgment.
Reversed and remanded.
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