The old saying “ignorance of the law is no defense” as it turns out, is not always true.
That's the upshot of a recent Minnesota Supreme Court decision dealing with one company's claim against another company for hiring a former employee contrary to a non-compete agreement. See, Sysdyne Corporation v. Rousslang, No. A13-0898 (Minn. Mar. 4, 2015) (“Sysdyne”).
In Sysdyne, employee Rousslang signed a non-compete agreement with his former employer Sysdyne. Then he left to join Sysdyne's competitor Xigent Solutions, LLC (“Xigent”). Before hiring him, Xigent consulted its lawyer who opined that the non-compete was not enforceable. Sysdyne sued Rousslang and Xigent, and the trial court awarded Sysdyne damages against Rousslang for breach of the non-compete.
However, the trial court denied Sysdyne's claim of “tortious interference” against Xigent. Tortious interference with contract occurs where a party knowingly causes another party to breach a contract without justification. Here, it was undisputed that Xigent knew about the contract and inasmuch as it hired Rousslang to solicit former Sysdyne customers, caused its breach. This case, however, hinged on Xigent's argument that it was “justified” in its conduct because it reasonably relied on advice of counsel.
Amazingly, the Minnesota Supreme Court bought it! The court observed that whether interference is justified is an “issue of fact” and the test is what is reasonable “under the circumstances.” The court distinguished a prior case where it had rejected a similar argument noting that in the prior case the defendant had not “candidly provided its attorneys with all relevant information,” such that the reliance on that case was not reasonable.
The decision in Sysdyne is probably music to many business lawyers' ears. When it comes to tortious interference, you can rely on advice of counsel, but only if you are candid about the circumstances.