Contracts 2: Employment Non-Compete Agreement
So, you finally landed the job you’ve always wanted but there is a requirement you don’t quite understand: the employer wants you to sign a Non-Compete Agreement (sometimes known as a Restrictive Covenant, Covenant Not to Compete, or NCC). The most common understanding of a Non-Compete is that it prevents you from being your employer’s current and future competition. While this is true, it’s a very broad brushstroke of what a Non-Compete entails.
What is a Non-Compete?
While Minnesota courts generally disapprove of Non-Competes, Minnesota recognizes two types of Non-Competes: employment and sale of a business. In this blog, we only address employment. A Non-Compete is a legally binding contract between an employee and an employer that imposes restrictions on the employee’s current or future employment with other companies in direct competition with the employer. Minnesota has seen Non-Competes being used for condition of employment at an all-time high. However, the Employer may do so in the Non-Compete by restricting the employee geographically, distance-wise, or time-wise.
Geographical
A geographical restriction means the employee cannot work for another competitor within the specified area. Most geographical restrictions will specify the area, say, downtown St. Paul, or Highland Park. The geographical area should be within the employer’s actual market area.
Distance
This clause is usually written out in the form of miles. A restriction may be that an employee cannot work for a direct competitor within a certain mile range, say 50 miles, of the current employer.
Time
A time restriction is usually in the form of months or years, depending on the industry. An employer will also take into consideration how long it will take to hire, train, and replace the employee.
When Non-Competes Are Unenforceable
Minnesota usually determines the validity of a Non-Compete on a case-by-case basis, but there have been some court rulings that have provided clarification on Non-Competes. A Non-Compete may not be enforceable when:
Lacks a Legitimate Business Interest
The restrictions it imposes are unreasonable and are not in the legitimate business interest of the employer. The Minnesota Court of Appeals determined that a five year 150-mile radius Non-Compete agreement was unenforceable because it lacked a legitimate business purpose. Oberfoell v. Kyte, A17-0575 (Minn. Ct. App. Jan. 22, 2018). An employer who puts in place a Non-Compete for the purposes not to protect its legitimate interests in preventing unfair competition, but to protect its investment in the employee by forcing him to remain with the employer, lacks a legitimate business interest. In every Non-Compete dispute, the court will analyze whether the restrictive language is necessary to reasonably protect a legitimate business interest. Bennett v. Storz Broadcasting Co., 270 Minn. 525 (Minn. 1965).
The language compels, requires, or forces the court to grant a certain relief.
An employer cannot force a court’s decision by contractually putting language in its Non-Compete that concludes findings for the Court. St. Jude Medical v. Carter, 913 N.W.2d 678 (Minn. 2018). In St. Jude Medical v. Carter, a Non-Compete signed by the employee stated that if the employee breached the contract, the employer would suffer irreparable injury. This language by itself cannot establish irreparable harm and thus could not compel the court to grant relief.
The End Date is Unreasonably Long or the Agreement Does Not Specify an End Date
Courts are critical of overly broad language and restrictions. Non-Competes can’t last for an unreasonable period of time, and they certainly can’t’ last forever. An employer must put a reasonable period of time in the agreement. A reasonable amount of time can be anywhere from a few months to a few years, depending on the industry.
Goes Against Common Sense
Simply put, while Non-Competes can be complex, they have to make sense. It cannot stop an employee from making a living or providing for himself and his family. It also must not suppress competition, restrict trade, or the flow of commerce. These are all things the court would consider when they look at Non-Compete disputes. Remember that Minnesota courts generally disapprove of Non-Competes and will closely evaluate and scrutinize each on a case-by-case basis.
Is Your Non-Compete Enforceable?
If a Non-Compete you signed or had an employee sign a long time ago causing you problems? Can’t find a job or an employee within the restrictions of the Non-Compete? Or are you an employer and want to protect your business interest? At Thooft Law, we are familiar with Non-Competes and will review your contract for validity and enforceability. We also draft Non-Competes and will evaluate the best language to protect your business interest.
Attorney Derek Thooft practices in many areas of law including business law. He is experienced in business contracts, business formation, trademark, human resource law, and business litigation. Contact him at ThooftLaw@gmail.com.