Tortious Interference of Contract in Minnesota

by Anthony L. Barthel, Esq.

Imagine you are the HR manager for a company involved in a sale of raw materials. Your business is highly competitive; customers are difficult to retain as commodity prices drive your business. However, your company has developed a niche in customer service which differentiates it from the competition and all other things being equal, your competition selects you…until your main competitor hires a spectacular sales representative. In a few short years this sales representative has managed to cut into your customer base and capture a larger portion of the market than you originally anticipated. Naturally, the person has caught your company’s eye and your company desires to hire this person. You are successful in gaining an interview with this sales representative and make a lucrative offer which is thoroughly discussed. During the meeting the sales representative discloses that he is under a non-compete and non-solicitation agreement with your competitor that may become a sticking point to him joining your company. Because you desire this employee and do not believe in the enforceability of non-compete agreements, you hire the sales representative anyway. Within days of the hire you receive letters from your competitor’s attorneys and a lawsuit claiming that you have tortiously interfered with their contract with the sales representative.

The genesis of a claim for “tortious interference with contract” stems from two basic principles – the Golden Rule and the sanctity of contract. In order to promote the importance of contracts and to promote some semblance of fairness in the marketplace, Courts have determined that persons unjustifiably interfering with others’ contracts can be held responsible for damages resulting from such an activity. A claim for tortious interference of contract includes five essential elements; (1) the existence of a contract; (2) the alleged wrongdoer’s knowledge of the contract; (3) intentional procurement of its breach; (4) without justification; and (5) damages. Without meeting all of these five factors, a claim for tortious interference cannot be established. This claim is an intensely factual determination looking at the role of each party and the course of conduct amongst them.

Existence of Contract

The existence of contract can often be simply determined. If there is a writing showing terms and scope of an agreement between two parties, this element is easily established. Much more difficult however, are oral agreements or agreements by action. Even so, defenses are available to someone alleged to have entered into a contract are not always available to one who is an alleged wrongdoer. As such, the establishment of a contractual relationship between other parties may not always be obvious and as such proper investigation is prudent.

Knowledge of the Contract

“Knowledge of the contract” is the inquiry into the alleged wrongdoer’s awareness of a relationship between two other persons. Courts are more open with this standard and do not require “actual knowledge” but will find the element satisfied if the alleged wrongdoer has knowledge of facts that if were reasonably investigated would lead to a disclosure of a contractual relationship. Thus, in our example of the sale representatives, actual knowledge is apparent and would easily satisfy this element of the claim. However, in hiring key employees businesses are well-advised to institute procedures to “smoke out” such contractual relationships to develop defensible positions to avoid liability.

Inducement of Contract Breach

A claim for tortious interference of contract also requires that the alleged wrongdoer provide an incentive for the breach of the contract. Often this element requires that there be some additional consideration giving an economic advantage to induce the breach. Merely providing the same economic relationship is not sufficient to establish the claim. For example, merely hiring an employee for the equal pay and benefits may not establish tortious interference of contract.

Without Justification

Courts look to the motive of parties to determine whether or not the inducement to breach a contract was justified. A Court must weigh the relationship of the alleged wrongdoer with the induced party to determine whether or not something is to be gained by the alleged wrongdoer. If the alleged wrongdoer could gain something legally or preserve a legal protection by inducing the breach of contract, it can be done with justification. However, if the alleged wrongdoer stands to gain a new or added benefit at the expense of another person, it is often unjustifiable. This very fact intensive situation considers the following factors: (1) the nature of the actor’s conduct; (2) the actor’s motive; (3) the interests of the other with which the actor’s conduct interferes; (4) the interest sought to be advanced by the actor; (5) the social interests in protecting the freedom of action of the actor and the contractual interests of the other; (6) the proximity or remoteness of the actor’s conduct to the interference; and (7) the relations between the parties.

Damages

Finally, to prove a case of tortious interference of contract, the plaintiff must establish that damage has resulted from the alleged wrongdoer’s conduct. In essence, one must ask the “but for” question. In other words, would there be any damages without the alleged misconduct. If the answer is no, then damages are not appropriate. However, if the conduct created the damages or largely contributed to the damages, Plaintiff can recover damages for all harm past, present and prospective caused by the wrongdoer and can also recover attorneys’ fees and expenses incurred as a result of the necessity of bringing a lawsuit to recover the damages.