As a Minneapolis business attorney, I get two types of questions related to Minnesota noncompete agreements:
- Is this contract not to compete enforceable?
- Would you draft a noncompete agreement for me?
In the sections below, I answer these questions by explaining an overview of Minnesota law related to noncompete agreements with employees. Below that is a 2011 update with an overview of Minnesota law related to noncompete agreements with independent contractors.
Finally, the 2012 update presents do-not-compete contracts with professionals like medical doctors, accountants, dentists, attorneys, and veterinarians.
Noncompete agreements involving the sale of a business are generally enforceable, so those are excluded from the legal guidelines below.
1. Enforceability of Non-Compete Agreements
Whether the contract is called a “noncompete” or “do not compete” agreement, the intent is the same: the employer seeks to bind the employee from leaving employment and competing with the employer at another company or individually. Whether they are enforceable depends on a number of factors to be analyzed by an attorney. These factors include:
- Independent Consideration - Was the employee paid independent consideration (compensation) for signing the noncompete agreement? In most circumstances this consideration is financial compensation, but training and promotions can sometimes be sufficient.
- Geographic Limitation - Is the geographic limitation in the noncompete agreement reasonable or too broad? This depends on the type of business. Local businesses are narrow, and international businesses are broad. The test is whether the employer has a legitimate business interest deserving protection.
- Enforcement Period - How long is the noncompete agreement in force after the employment relationship is terminated? Two years or less is generally okay. Longer is suspect.
Before you ignore a noncompete agreement, you should consult with an attorney to analyze the contract. An attorney can give you a legal opinion regarding whether the noncompete is enforceable. The consequences of breeching a noncompete agreement may include a temporary restraining order preventing you from working in violation of the noncompete along with a lawsuit for monetary damages.
2. Drafting Non-Compete Agreements
The laws involving noncompete agreements varies across the United States. A noncompete agreement that is enforceable in one state may not be enforceable in another. For this reason, understanding Minnesota law is important. Also, noncompete contract forms purchased on the internet may be inadequate for parties in Minnesota.
When I draft a noncompete agreement, the process involves carefully applying relevant Minnesota law to ensure the contract remains enforceable. Properly written noncompete agreements are routinely enforced by courts in Minnesota. However, mistakes can void the agreement. For this reason, you should consult with an attorney if you need a noncompete agreement drafted.
2009 Update: Employee Non-Compete Agreements
Three 2008 Minnesota court cases may make noncompete agreements easier to impose on employees and enforce on ex-employees who signed noncompetes. Three Minnesota Court of Appeals cases upheld noncompete provisions under a variety of circumstances:
- Tenant Construction, Inc. v. Mason, 2008 WL 314515 (Minn. Ct. App., Feb 5, 2008) (unpublished).
- Sealock v. Petersen, 2008 WL 314146 (Minn. Ct. App., Feb 5, 2008) (unpublished).
- Witzke v. Mesabi Rehabilitation Services, Inc., 2008 WL 314535 (Minn. Ct. App., Feb 5, 2008) (unpublished).
Witzke is especially interesting because the court held that “continued employment” for a long duration after signing the noncompete will qualify as “consideration.” Previously, the general rule was that a noncompete must be accompanied by “independent consideration” (normally some sort of financial compensation) to be enforceable on a current employee.
Other Minnesota law firms have also written good articles on Minnesota noncompete law:
- Will Your Noncompete Clauses Stand Up in Court? by Marshall H. Tanick
- Litigating Covenants Not to Compete, by William Christopher Penwell
In the end, whether a noncompete agreement is enforceable is often unclear because every situation is different. There is no clear line. For this reason, even most attorneys who are not experienced with noncompete agreements will defer to the analysis of an experienced noncompete lawyer. Thus, it goes without saying that, if you are not an attorney, you should consult with an experienced noncompete attorney to determine whether your noncompete contract is enforceable.
2011 Update: Independent Contractor Non-Compete Contracts
There was recently an important development in Minnesota law regarding noncompete agreements with independent contractors.
The Minnesota Court of Appeals held that the the doctrine of independent consideration (which generally requires independent payment to an employee for a noncompete agreement to be valid) did not apply to independent contractors.
The case is Schmidt Towing, Inc. vs. Chris Frovik d/b/a FTR Towing and Recovery, 27-CV-09-6303 (Minn. Ct. App. Nov. 9, 2010).
The Minnesota Court of Appeals did not say that noncompete agreements with independent contractors are always invalid. Rather, the Court of Appeals directed the district court to examine the enforceability of the noncompete agreement using “the legal principles that generally govern noncompete agreements.”
2012 Update: Attorney, Doctor, Dentist, Accountant & Veterinarian
Recently, I have represented a number of professionals who were bound to noncompete agreements. It is important to note that Minnesota law generally enforces noncompete agreements as part of the sale of a business.
Minnesota Attorney Noncompete Agreement
The Minnesota Rules of Professional Responsibility prohibit the enforcement of a noncompete against another attorney. The basis for this rule is that clients should have a right to pick their attorney, and a noncompete agreement among attorneys would violate the client’s right to choose a lawyer. Thus, Minnesota law does not permit noncompete agreements among attorneys.
Minnesota Doctor Noncompete Agreement
No Minnesota law prohibits a noncompete agreement with an employee doctor. However, the American Medical Association (AMA) has an opinion “discouraging” noncompete agreements.
Minnesota Dentist Noncompete Agreement
The American Dental Association’s professional code provides for “freedom of choice” for patients to select their dentist “without any type of coercion.” However, Minnesota law generally does not restrict noncompete agreements with an employee dentist.
Minnesota Accountant Noncompete Agreement
Minnesota law generally does not restrict noncompete agreements with an employee accountant or certified public accountant (CPA).
Minnesota Veterinarian Noncompete Agreement
No Minnesota law prohibits a noncompete agreement with an employee veterinarian. However, the American Medical Association has an opinion “discouraging” noncompete agreements.
About the Author: Attorney Aaron Hall routinely represents employees and employers with noncompete agreement disputes and drafting noncompete agreements. He is available to analyze noncompete agreements or represent parties seeking to understand their legal rights and options. Aaron is licensed to practice law in Minnesota state and federal courts. His work is largely in the Twin Cities, Minneapolis and St. Paul, MN.
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I signed a non-compete with an employer 11 year ago who then partnered with another company to sell the same products I had been selling. While employed I was told I had to sign a non-compete with the partner company. I was not paid to do so but over the years, in addition to W-2 income from the first company, I did receive 1099-misc bonuses from the partner company. I was laid off at the end of 2011 (my position was eliminated) severing my relationship with both companies. Is the non-compete binding?
Tim Pierce:
In general, a non-compete agreement is binding for a first employer as well as subsequent partners if signed when the employee starts working with each. For your circumstances, a careful legal analysis of the documents and some additional facts would be necessary to specifically ascertain your legal rights and options.
Aaron
This non-profit dental clinic serves only patients on State programs, MA/MnCare. We have utilized volunteers for about 5 years. We are now trying to hire a fulltime staff, including a dentist. My volunteer dentist want a non-compete only for our dentist starting a new clinic when leaving ours. They are not concerned about taking patients of course, nor buying an existing office or going to work for an existing office. This should make for a very short no-compete?? I have been searching for a “biolerplate” form, due to our non-profit budget. No luck so far. Any thoughts would be greatly appreciated.
Al Olson:
Thank you for your message about seeking a non-compete agreement. While I have seen “biolerplate” forms online, the difficulty is that they must be carefully customized to the circumstances in order to avoid being overly broad (creating enforceability problems) or too narrow. Our firm charges a fixed fee of $500 to draft a non-compete agreement, which also includes a confidentiality provision and non-solicitation provision. Is this in line with your expectations?
Aaron
Hi Aaron,
Interesting question here for you. I had recently partnered in business with my brother inlaw back in October 2011. In doing so we created a business developing web applications. I was the money maker and together we built a pretty sophisticated software application utilizing many ideas that we both had to create what we did. Now 6 months later, we have parted ways. He took the company and moved on and I decided to move on as well. I am in the process of developing a model that functions and operates in the same manner and about 4 weeks out from launch. There was never any documents signed regarding privacy, non compete, non solicitation or non disclosure. Not a single document signed for anything.
Our previous customers have expressed a desire to move their accounts to me because of previously established long standing relationships in years of business together. The lead list of customers signed during our business venture was supplied by myself and nothing was supplied to e by my brother in law.
Questions is this:
With no documents having ever been signed, do i face any back lash for creating similar software and would I face any backlash granting the wish of customers desire to continue our business relationship?
Other attorneys have said i am free to do whatever I wish.
Please advise.
Thank you for your time.
Warm regards.
7 years ago i had to sign a non compete with the Real Estate broker, i was told that since it did not have an end date and automatically renewed each year, just to sign it. i signed it, he is impossible to work with, changes the rules to fit him and now has told me that my assistant can’t answer the telephone. i would like to start my own company as i am a broker too. does that non compete hold??
Jane:
Thank you for your comment. We would be happy to work with you. We have an attorney at our firm who is outstanding with noncompete agreements. He formerly worked at the Minnesota Supreme Court and at Minnesota’s largest law firm. He is very experienced with noncompete agreements. He would be happy to analyze your noncompete agreement and advise you on it, as well as on your legal rights and options. This can be done by meeting in person or by phone. Our firm charges a flat fee for this. Feel free to contact us to learn more.
Aaron
Rick Cota:
What you had here was a partnership. A partnership involves both partners having fiduciary duties to each other, including the duty not to compete and joint ownership of any intellectual property created in the partnership. However, that duty ends when the partnership ends. Whether your partnershp has ended is a complex legal question, but it appears that you both are acting as though the partnership is over. Based on this assumption, you have no duty to not compete with your former partner (i.e. your brother in law).
Aaron
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