HARRIS v. BOLIN No. 46465.
247 N.W.2d 600 (1976)
Ralph S. HARRIS, Respondent, v. Myron R. BOLIN, as Trustee of the M. R. Bolin Advertising Public Relations Agency, Inc., Profit Sharing Trust, et al., Appellants, M. R. Bolin Advertising Public Relations Agency, Inc., Defendant, Warren Spannaus, Attorney General, State of Minnesota, Intervenor.
Supreme Court of Minnesota.
Rehearing Denied December 29, 1976.
Warren Spannaus, Attorney General, and Richard S. Slowes, Spec. Asst. Atty. Gen., St. Paul, for intervenor.
Heard before ROGOSHESKE, KELLY and SCOTT, JJ., and considered and decided by the court en banc.
This is an appeal from a summary judgment entered pursuant to an order of the Hennepin County District Court against the trustee of the M. R. Bolin Advertising Public Relations Agency, Inc., Profit Sharing Trust. The action was brought by Ralph S. Harris to recover profit sharing funds contributed on his behalf by his employer, the Bolin Agency. His claim to the funds was refused when he left the Bolin Agency to work for a competing advertising firm in violation of Section II, Article 7, Paragraph 7.04, of the profit sharing plan and trust agreement. Following plaintiff's motion for summary judgment, the court entered an amended order holding Paragraph 7.04 of the agreement void under Minn.St. 181B.101 and an illegal restraint of trade under common law. We affirm.
Plaintiff was employed by the Bolin Agency from October 15, 1961, to July 1, 1971. He left the agency to join another advertising firm located in Minneapolis. When Harris left the Bolin Agency the value of his trust account was $14,301.14, and of that amount $12,871.03 was vested. Under Section II, Article 7, Paragraphs 7.01 and 7.03 of the profit sharing plan and trust agreement, a vested interest is not forfeited by the employee upon termination of employment with the Bolin Agency. A vested interest, however, is subject to forfeiture under Section II, Article 7, Paragraph 7.04:
In this case, the trustee declared plaintiff's entire vested interest forfeited. The funds in the profit sharing trust were contributed by the employer. After plaintiff left the Bolin Agency, two clients of that agency switched their business to plaintiff's new employer.
The issue to be determined is whether the district court was correct in holding that the forfeiture clause in the profit sharing plan and trust agreement is an illegal restraint of trade.
There is no Minnesota case involving the validity of a forfeiture declared under an anticompetition clause in a pension or profit sharing plan, and Minnesota does not have a statute proscribing restraints on the right to pursue a lawful profession. This court, however, has held that forfeitures under covenants against competition are not favored and those claiming them must show that the equities are on their side. Naftalin v. John Wood Co.,
Any analysis of the forfeiture involved here should begin by noting that the employer's contributions to the profit sharing plan are not a gratuity but constitute deferred compensation for services rendered. Van Hosen v. Bankers Trust Co.,
The effect to be given a forfeiture-for-competitive-activities clause of a profit sharing plan has been the subject of several cases and commentaries. See, e. g., Food Fair Stores, Inc. v. Greeley,
Defendant-appellant contends that limitations on the scope of Section II, Article 7, Paragraph 7.04, of the profit sharing trust are implied by the language of the clause. He argues that this paragraph is only operative when "an employee leaves the company to enter into a competing business"; hence, an employee must leave for the immediate purpose of competing in the immediate vicinity of the agency to forfeit his vested interest. The plain language of Paragraph 7.04 does not support this interpretation.
The forfeiture clause of the profit sharing plan and trust agreement constitutes an unlawful restraint of trade because it is not limited as to time, harm to the employer, or geographical area. The clause which causes Harris to forfeit part of his compensation in order to exercise his right to compete is broader than necessary to protect the legitimate interest of the employer and is not reasonably limited as to time and territory.
We find that the district court was correct in holding that the forfeiture clause is an illegal restraint of trade at common law. It is, therefore, unnecessary to discuss the applicability of Minn.St. 181B.101 to this employer, or whether such retroactive application would be an impairment of the obligation of contract or denial of due process.
SHERAN, C.J., took no part in the consideration or decision of this case.
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