Jurisdictions clash over non-compete suits

Workforce, April, 2003 by D. Diane Hatch, James E. Hall, Matthew T. Miklave

In 1995, when Medtronic, Inc., a Minnesota corporation headquartered in Minnesota, hired Mark Stultz to work in its Minnesota offices, he signed a non-competition agreement providing that, for two years after the termination of his employment, he would not work for Medtronic's competitors.

On June 7,2000, Stultz resigned from Medtronic and accepted employment in California with Advanced Bionics Corporation, a direct competitor of Medtronic headquartered in California. That same day, Stultz and Advanced Bionics began an action against Medtronic in Los Angeles Superior Court, claiming that the non-competition agreement violated California's public policy against non-competition agreements and was void under California Business and Professions Code section 16600, which, unlike the laws of most other states, provides that such non-competition agreements generally are void and unenforceable. Medtronic then sued Stultz and Advanced Bionics in a Minnesota state court, which enjoined Advanced Bionics from employing Stultz.

In December 2002, a unanimous California Supreme Court ruled that a California court cannot enjoin a parallel state-court action to enforce an employee non-competition agreement because principles of judicial restraint and courtesy outweigh California's strong public policy against such agreements. Advanced Bionics Corp. v. Medtronic, Inc., 2002 WL 31834909 (Dec. 19, 2002).

Impact: Companies in interstate disputes involving non-competition agreements must be prepared for the possibility of extended dual proceedings in two venues.