Non-Compete Agreements in Minnesota
Generally, Minnesota courts do not like non-compete agreements. They are seen as a restriction on the ability of people to work and a constraint on the free movement of workers. However, there is a place for non-compete agreements and courts recognize that. Given the confidential nature of information many employees have access to, and how that could harm a business if the employee went to a competitor, Minnesota courts are willing to enforce non-competes if they are found to be “reasonable.”
Well, “reasonable” seems like a simple enough standard to meet, but what is reasonable to one party may not be reasonable to the other party. Ultimately, Minnesota courts have looked at the facts of many cases to determine what is reasonable in a given situation. In figuring out what is reasonable, there are two factors to look at. First, is the duration of the agreement reasonable, and second is the scope of the agreement reasonable?
As a very general rule, non-compete agreements shouldn’t last for longer than 2 years following a person’s employment. However, the specific facts of each situation will dictate how a court rules. Non-compete agreements have been reduced down to six months, or even eliminated in some cases. Vague or non-specific language in a non-compete can also cause enforcement problems.
Reasonable Scope of Limitations
The scope of a non-compete agreement can be broken down into two sub-factors, geographic scope and scope of limitations. Speaking broadly, if a company only has one location in Minnesota, then their non-compete agreement will be unenforceable if it prevents work anywhere in the state of Minnesota. Non-compete agreements should be limited to the geographic area a company does business in.
A company cannot prevent an employee from performing any type of work for other companies in the future. The scope of limitations must also be reasonable, and be limited to the type of work the company is engaged in. For example, a landscape installation company cannot restrict an employee’s future employment in the restaurant industry. Instead, a reasonable restriction may be to limit the employee’s ability to work in landscape design, sales, and installation.
If you decide that it makes business sense to have a non-compete agreement in place for some of your employees, there are additional requirements beyond simply being ‘reasonable’. There must also be adequate ‘consideration’ for the employee to sign the agreement. This means there must be some sort of incentive or value for the employee in signing the agreement. At the beginning of employment, the offer of employment is usually good enough consideration. If you want existing employees to sign a non-compete agreement, there must be additional consideration, above and beyond continued employment. Usually additional consideration takes the form of a one-time payment to the employee. The amount of the payment must again be ‘reasonable’ in relation to the rights the employee is giving up.
Going to Court Isn’t Cheap for Anyone.
Even if you have a non-compete agreement in place, employees may still violate that agreement. You will have to decide if the cost of enforcing the agreement is worth it to you. Are the losses, or potential losses, great enough to justify incurring significant legal fees?
Flipping the situation around, if you are an employee who signed a non-compete agreement, the employer can still take you to court, even if your ‘competition’ falls in a grey area. Do you want to risk the possible expenses of litigation so that you can work for another business?
There are many facts involved in determining whether a non-compete agreement is reasonable in a given situation. If you use, or are considering using a non-compete, speak to a qualified attorney to get advice on how your specific facts will play into the situation.