As an attorney, I get two types of questions related to 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.
1. Enforceability of NonCompete 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. 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? This generally means 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 NonCompete 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 Affecting Employees
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 Affecting Independent Contractors
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.”
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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Andrew:
The fact that you were not paid anything (which is legally called “independent consideration”) to sign the noncompete agreement could make the noncompete invalid.
I can’t comment on the vagueness with reading the noncompete to determine whether it actually was too vague under Minnesota law.
You asked whether someone can prevent you from trying to earn a living in a location closer to your home. Generally, yes, noncompete agreements will have that effect.
Aaron
I was offered a job in the summer at a salon that was not yet open, I was told there would be a non compete contract but the owner did not go into detail about the terms of the contract. About a month later the salon opened and I began work taking clients and then a week later she presented the contract to me and signed it. She has done many sneaky things since my employment. She gives us commission only and required us to stay at work and does not have our hours recorded not even on our paychecks…In my profession I need my hours to retain my license…After 10 months she asked me to leave and give her my keys to the salon…for unemployment reason she has said I quit and to cover it up so I did not recieve those benefits. She has now contacted a lawyer as I tried to work at another salon 11 miles away. Our contract did say I could not work in a 45 mile raidius for 6 months…My reasoning for doing it is that I know you cannot impose a contract on an employee after they have started employment and if they do a promotion or monetary compensation of some sort must be given..I need some advice on what I need to do from this point as I have stopped working as I do not want to be served an injuction..Do I fight this or do I fold?
Deirdra:
It is very possible that your noncompete agreement is not enforceable, but you should have an attorney analyze it and all the circumstances before you assume it is not enforceable.
Aaron
I work for a large company who has a kiosk inside another large company’s stores. The 2 companies have a non-compete between themselves, but I have never signed a non-compete agreement. I would like to leave my company and work for the store in which I am now working. Obviously the 2 companies are not competitors.
Is this non-compete legal? I have heard since we are an employment-at-will state that this might be legal. The MNDLI is shut down so I am trying to find answers and how I should pursue this. Thank you!
Justin:
As a general rule, employees in Minnesota work “at will” so they can resign at any time and work for another company, including a competitor. However, employees may waive this right by signing a noncompete agreement. If the individual employee never signed away this right, the employee is permitted to resign and begin work with another company.
Thus, in your situation, there should be no problem changing jobs.
Aaron
First I never signed a non compete agreement with my previous employer. Out on my own doing the same thing, but only mobile.
Would they be able to sue? I did not at anytime while I was still an employee let other customers know of what I was going to do. I told one I was leaving, but don’t think he understood me. The other I said Tuesday is my last day. Never said what i was gonna do or where. I guess is there some sort of standard (default)point that would apply even without a non compete? Like say even though I didn’t sign, I still cannot operate within 50 miles?
When I began working for this company they had me sign a non-compete agreement. The position at that time was for .9 FTE and was as an intervention teacher in the local public schools. After a few years I was asked to take a full time position as a manager. I am now in charge of the intervention teachers, but I am also responsible for a number of other programs. The paperwork for the new position did not include a non-compete form for the new position. Does a non-compete agreement transfer automatically even if your role has changed?
Scott:
Great question. The answer to this question depends on the specific language of the noncompete agreement you signed. An attorney’s analysis would be necessary. Our firm charges a $250 flat fee for this if you are interested.
Aaron
hi, i’m a psychologist. i signed a non-compete when i began work at a counseling clinic. i left the clinic for a variety of reasons and began my own practice 10 miles away. i gave all clinic clients referral info to transfer to another psychologist at the clinic. however, most ASKED ME if they could continue therapy with me. i didn’t solicit; i even encouraged them to continue at the clinic, making it clear that they might not be able to access their medical insurance if they saw me in my private practice. if they choose to continue therapy with me, and i didn’t solicit their business, can i continue working with them? don’t they have a right to choose their therapist even if they signed a non-compete with the clinic?
Gayle:
Certain professions, such as attorneys, are prohibited from using noncompete agreements, which is based on the belief that the client should have a right to choose their professional, and the professional does not own the client. For attorneys, this restriction is found in the Minnesota Rules of Professional Conduct.
However, the Minnesota Board of Psychology Practice Act has no such restriction. While there may be such a restriction on psychologists, I do not know of one, and I couldn’t find one in 10 minutes of legal research.
As a general rule in Minnesota, parties are free to enter into agreements not to compete. So unless there is a special exception for your profession, the general rule would apply and your noncompete agreement would be enforceable (assuming the noncompete agreement language is in accordance with the law).
Aaron
when i came onto remax as an independent agent, i was told i had to sign a non compete. it says that i would not beable to work in the real estate market in our county for five years, my instructor at real estate school told me to sign it, there was no end date so it wasn’t valid. the contract automatically renews every year. could i be held to that non compete. other agents have left and worked for another company and two agents for sure never have had to sign the non compete. I could not go without working for a year and think that i could get my clientele back. we are independent agents. help!
thanks
jane
Jane:
I cannot tell you whether your noncompete agreement is enforceable without analyzing it. You are welcome to contact my office for a noncompete analysis if you would like.
Aaron
Hello – my employee signed a non compete contract with his previous employee that spans a years time and stops him from doing anything locksmith related for a full year within 7 MN counties. Do you think MN would hold this as a valid contract?
The only time the non compete clause was signed was on the initial contract the day he started his employement and he signed at least 5 other contracts after that – does that have any affect on it?
Also – as the employer could I get in trouble for having him work under me knowing this information?
Chelsey:
I could not say whether any of the contracts are enforceable without analyzing them and fully understanding the situation. There are a variety of factors that would need to be analyzed.
As a general rule, employers who hire a person bound by a non-compete agreement can be liable for tortious interference with the contract.
Aaron
I work for a small medical service company. I get paid a salary plus commission. My commission haven’t been paid for several months because the company cannot afford it. We also hear on a daily basis there is no money to…. Can they hold me to my non-compete under these conditions?
I work for a small medical service company. I get paid a salary plus commission. My commissions haven’t been paid for several months because the company cannot afford it. We also hear on a daily basis there is no money to…. Can they hold me to my non-compete under these conditions?
Kevin:
They can hold you to a noncompete agreement unless the agreement states otherwise. However, you have a right to the money owed you. You are welcome to contact my office for a free consultation regarding how to get the wages that are owed to you.
Aaron Hall
612-644-0015
My current position is a sale rep for a health insurance company. When I started working sales, I sold our individual plans. A month into the job, I was told that I needed to sign a non-compete contract or I could no longer work. I had already started the job and there was no way out. So I signed it. My director at the time, told me that I could work with competitors in our area, but I could not work in sales or marketing. That would break the contract. Time went on and I moved to a different department. They made me resign the contract. They contract was exactly the same, so I applied the same principal.
Now some things have happend at work and I want to leave. I am very unhappy. So I got another job with another insurance company outside of sales and marketing and in regulations and compliance.
Would this non-compete hold up in court, with the way it was enforced on me? What do you think?
Thank you
Melinda:
The general rule in Minnesota is that a noncompete agreement should not be binding on you if you are given no notice of it before starting your job and you sign it after you started without any payment for signing it. This is called the doctrine of “independent consideration.”
However, there can be an exception if you are provided education, bonuses, promotions, etc. over time. The exception is the court’s way of saying, “although we wouldn’t enforce the noncompete agreement if you left early on, the employer has relied on your signing it as the employer has invested in you over the years, so you cannot get out of the noncompete agreement now.”
As you can see, although the principals in the law are clear, it is difficult to predict how a judge will apply those principles to an employee’s particular situation. Your best option is to meet with an attorney to analyze the details of your situation and explain your likelihood of prevailing. With my clients, we have pursued a Declaratory Judgment Action to ask the court to decide, prospectively, whether the noncompete will be binding on the employee. That way you can know how the law applies to your situation before you take the risk of breaching your noncompete agreement.
Aaron
Can a noncompete be enforced by a rental company? Does it (noncompete) have a place in a rental agreement? Yes I am being sued
Derrik:
I need more information to answer your question. Were you renting a home?
Aaron
Thank you for your earlier advice. I just wanted to ask you one more question. If I sign a non-compete, then I was promoted. Would that non-compete still hold up?
Another question… I am currently working in sales, and I am moving to regulatory/compliance in government program. No sales, no client facing. Would the non-compete still hold up when I am doing a different job with a competitor? Thank you
Hello Aaron
I started work for a company in mid-June. My employment contract contains non-compete and non-solicitation clauses, stipulating that I won’t work for a competing business or (directly or indirectly) solicit customers, clients, vendors for one year after termination. I was just fired by this company. My term of employment lasted four months. (on a side note, I believe my employment was terminated because I began to raise questions about the company willfully misleading and defrauding their clients). Are these clauses reasonable or enforceable after such a short term of employment. To be honest, I won’t even be able to put this employment on my resume, the duration was so short.
Thanks in advance
Dave
Dave:
A short employment period alone is not sufficient to invalidate an employment agreement. However, you may have other claims and defenses. I recommend that you speak with an attorney about this as soon as possible.
Aaron
Hello Aaron
I’ve worked in book publishing for just over 20 years. I recently took a job with a self-publishing company who required that I sign a noncompetition agreement. The language in it is very broad. It states that after my employment with them ends I am prevented from working in a ‘competing’ business for one year. Since books are read for many purposes, such as leisure, education, training, employment and recreation, a ‘competing’ business could be nearly anything, but especially anything that competes for people’s leisure or free time. Is such a broad clause even remotely actionable or enforceable?
Thank you
Alan
Alan:
In general, a competing business is one that directly competes, such as another publisher. A provision like this in a noncompete agreement will normally be narrowly construed to protect the interests of the employer but no more. A noncompete agreement should not be enforced if the employer has no reasonable interest in preventing the employee from working in a new job. That is, courts generally do not enforce noncompete agreements when the employer has no protectable interests at stake.
As always, I encourage you to seek the advice of a business attorney before you risk violating a noncompete agreement that you do not believe is enforceable.
Aaron
I work for a large corporation. I received a non compete agreement thru email. Nothing was ever signed, I replied by hitting the “accept” button. I have never cashed in any stock options
I now want to go work for a competitor. Will this contract hold up in court?
Cindy:
In general, clicking an “accept” button on a computer or website is sufficient to bind someone to a contract.
To determine whether your contract would hold up in court, I would need to analyze your contract and your circumstances for all possible ways that the contract could be deemed unenforceable.
Aaron
Aaron,
The company I’m currently working for was recently acquired and I will not be moving with the company. We were offered temporary positions until the physical move and to help with the transition to the new location. They are only willing to do this only if we sign a 1 year non-compete, and I believe they offered a 2 week severance at the end of the temporary employment term. Is this a valid non-compete situation? We do not currently have non-competes with the current company that has been purchased.
Thank you for any information
Junior:
There is nothing invalid/illegal about this situation. Essentially, you have the right to choose between (1) signing the noncompete agreement to continue to work there or (2) not signing the noncompete and potentially being terminated from employment (which would likely entitle you to receive unemployment benefits).
Aaron
Hi Aaron, I am an IT person- subcontracting for a MNC. My company is based out of minnesota and has only 2 employees – one in MN and one in NY and is basically a bodyshop and contracts both of us to a contracting firm and that firm contracts us to MNC Client . I have been working for this company and for same client for 12 years. My company has never provided me any training ever – I don’t have health benefits through them – They just take cuts and provide me hourly salary. Client – with whom I have a good relationship for last 12 years have provided me trainings, equipment etc.
5 years back – the company changed its name and asked me to sign another employment letter that has a non compete clause.
Now my client wants to hire me, What can my company do if I accept their offer. Sorry! if this is confusing – but will appreciate any response..
Ruthie
Ruthi
Ruthie:
It appears that you are wondering what the consequences can be if you accept an offer in violation of a noncompete agreement.
The potential consequences of violating a noncompete agreement are:
1. The former employer seeks an injunction preventing you from working in the new job.
2. The former employer sues you for damages under a breach of contract theory (among others).
3. The former employer sues your new employer for damages under a tortious interference with contract theory (among others).
Whether your noncompete agreement is enforceable is another issue. For that, you would need an attorney to specifically analyze your circumstances and the language of your contract.
Aaron
Hi Aaron , thanks a lot, I forgot to mention- my client manager says they have to contract-to-hire contract with the subcontractor- so they cann’t be sued for anything. Does this help me in any way?
Ruthie:
“Contract-to-hire” can mean a lot of things. In fact, contracts can be named anything; what matters is the provisions in them. So without an analysis of the terms of the contracts, there is no way to know whether these contracts help or hurt you.
Aaron
Aaron,
Is your previous employer legally obligated to provide you with all SIGNED non-compete agreements they have on file? I have a unique circumstance where I provided a standard two week notice, was open and honest that I was going to a competitor for a better job offer and for the better part of a week they were very supportive. Abruptly, with 3 days left of my final two weeks they terminated my employment and said they would pay me for my remaining time.
They have sent a letter to my new employer but I do not know the details of that letter. My new employer has asked that I attempt to get a copy of my signed non-compete agreement which I have already done. I contacted via phone and email without response, what rights do I have?
My new employer has told me that they have my back and they are a very large corporation so I am less worried than if I was trying to defend myself but I do want to have their legal team look at the exact terms of the non-compete. Is it a situation where my new employer’s lawyers would have to attempt to get that information if they did not provide it to me directly?
Chris
Chris:
A former employee may either request to review his or her personnel file once a year or obtain a copy of his or her personnel file free of charge once a year for as long as the record is maintained. (See Minnesota Statutes 181.961.) The noncompete agreement should be in your personnel file.
Aaron
I am employed as a sales representative by a corporation whose headquarters are in Minnesota. However, I live and work in another state. I have a non-compete agreement that states it is governed by the state of Minnesota. Can the non-compete agreement also set the ground rules for which state governs the agreement?
Furthermore, it states that one can not solicit to any customer of the corporation, regardless of territory. It is my understanding that I cannot solicit to my current customers with whom I have relationships. Can the agreement prevent me from a accepting a position with a competitor in a territory different than my current territory with customers with whom I am unfamiliar?
Clarke:
Here is the law regarding your two questions.
1. Electing a State’s Law
In a contract, parties can elect which state governs their contract as long as that state has some reasonable connection to the contract. This is called a “choice of law” provision and is fairly common.
2. Non-Solicitation of All Customers
Courts have upheld many non-solicitation agreements that prevented the former employee from soliciting any customer, including customers who had no contact with the former employee. However, the general rule is that the company must be protecting a reasonable company interest balanced against the employee’s right to find work. For example, if a clerk at Target signed an agreement not to work for any company who solicited customers of Target, and then the person left Target to get a job as a minimum wage clerk job at Wal-mart, I’m fairly confident that a court find that Target had no reasonable interested in preventing a clerk from working at Wal-mart. However, the Target example would be different for employees with more responsibility. This is an example of where the facts and circumstances of a situation are very important, so an attorney could analyze the details of your situation to advise you regarding your legal rights and options.
Aaron
I am an mechanical engineer. I was required to sign a noncompete after 3 years of employment, no additional compensation was given.
There is a product on the market which I redesigned to fit my employers manufacturing methods. My employer has decided not to pursue that market because it is not in the market we currently service.
Am I able to leave this company, then design a configuration similar to the one I designed for my current employer and market it?
Carl:
There are a number of legal issues relevant to your situation including (1) whether the noncompete is enforceable and (2) whether the intellectual property you created belongs to your employer. Each of these issues requires a close analysis of a number of facts and circumstances particular to your situation. For this reason, you should consult with an attorney regarding your situation. I cannot adequately explain all the applicable legal doctrines here.
Aaron
Aaron,
My company was recently informed that we were losing some business contracts due to one of our employees intent of quitting her employment and starting her own company and servicing these contracts. We are a rental property management company, that manages apartments buildings for owners. We have never had any non-compete agreements, before, but think we should have our remaining Property Manager sign one now. Is a non-compete enforceable after the employee has been employed for a number of years with no agreement?
Robert
Robert:
In general, an employer must give “independent consideration” to a current employee in exchange for the employee signing the noncompete for the noncompete to be enforceable. For example, an employer can require employees to sign the noncompete to keep their employment and give $500 to each employee as the “independent consideration” for signing it.
Here is something to consider for the employee who is leaving. Employees owe fiduciary duties to employers during their employment. This means that employees owe a duty of loyalty to the employer and cannot use company accounts, client lists, or company information for their own personal benefit. There are also trade secret considerations if the employee is taking confidential company information. Finally, you should consider whether the employee is tortiously interfering with your contracts with your clients. We handle this type of matter all the time. You are welcome to contact me to discuss ways to keep the business you may be losing or otherwise be compensated for this loss.
Aaron Hall
http://MinnesotaAttorney.com
ahall@twincitiesfirm.com
In March of 2006 I accepted a position with a pest control company as a service technician and signed an employment agreement. In mid 2008 I requested an opportunity to spend more time in sales. A position was created allowing me to spent half time in service and half time in sales. This position did not work for me as planned. Without going into details that describes double standards I requested a switch back to a full time service technician.
After the switch (mid 2009) they had me sign another employment agreement the same as the one I signed when first employed in 2006. I did not receive any consideration when signing this agreement in mid 2009.
On January 31 2010 I quit and started a pest control business of my own. In mid March of 2010 they sent me a letter reminding me of the employment agreement I signed in 2009. I have been running my pest control business for 12 months now fully aware to them. Can they still decide to seek an injunction against me for the remaining 12 months of this agreement?
Dave:
The first question is whether you are bound by a noncompete agreement. You should have an attorney analyze your noncompete agreement to determine that first.
If you are bound by a noncompete agreement, your former employer is entitled to seek an injunction against you. However, the employer will probably have difficulty showing the urgency required to obtain an injunction after the employer apparently did not act like it was urgent during the first 12 months.
Aaron
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