A Minnesota non-compete agreement is a set of contractual restraints that prevents someone from pursuing a particular line of work.
Minnesota law on non-compete agreements is more focused than other states on “consideration,” the idea that both parties to a contract have to receive some kind of benefit in order for a contract to be valid. It also has a somewhat more detailed analysis of the amount of time that a non-compete agreement can last.
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Although Minnesota law disfavors non-compete agreements, they may be enforceable so long as they are reasonable and supported by consideration. (Ecolab, Inc. v. Gartland (1995)).
A non-compete agreement is reasonable if it protects the business or good will of the employer, and the restraint it imposes on the employee is no greater than necessary for that protection, in terms of:
- The conduct or type of work the agreement targets;
- The amount of time the agreement is effective for; and
- The geographic area the agreement covers.
Non-employment agreements associated with the sale of a business are evaluated more leniently than those found in an employment agreement. (Bennett v. Storz Broadcasting Co. (1965)).
The area covered by the agreement probably should not be bigger than the one where the employee or the company does business. Agreements that prevent a former employee from working in an area that is much larger are probably unreasonable. (Davies & Davies Agency, Inc. v. Davies (1980)).
Attorneys cannot participate in agreements that limit their right to practice in the future, including:
- Employment contracts
- Partnership agreements
- Agreements settling a case
This rule does not apply to agreements concerning retirement agreements.
A non-compete agreement may be enforceable against an employee who has been terminated, but will not be if the employer acted in bad faith. (Edin v. Josten’s, Inc. (1984)).
The party seeking to enforce the non-compete agreement has the burden of proof. (Overholt Crop Ins. Service Co., Inc. v. Bredeson (1989)).
Continued employment by itself is probably not adequate consideration to support a non-compete agreement in Minnesota.
If the non-compete agreement is signed at the same time the employee begins work, then the position itself can adequate consideration. But if the non-compete is not part of the contract for a new job, such as when the employee is already working for the company, the job alone cannot be adequate consideration. (Safety Center, Inc. v. Stier (2017)).
If, however, the employee remains working for the same firm, but signs the non-compete agreement in association with receiving additional benefits, salary or responsibilities, then there may be adequate consideration. (Freeman v. Duluth Clinic, Inc. (1983)).
There is no maximum term for non-compete agreements.
For non-competes that are part of an employment contract, usually two years is the most courts will approve, but in deciding on whether a duration term is reasonable, courts consider:
- The industry involved;
- The time necessary to train a new employee; and
- The time a new employee takes to become familiar with customers.
For non-competes that are part of the sale of a business, usually five years is the most a court will approve, but courts consider whether the time period is a reasonable balance of the buyer’s interest in good will and avoiding imposing a hardship on the seller. (Bess v. Bothman (1977)).
Courts can modify an unreasonable non-compete agreement and enforce it only to the extent it is reasonable. (Davies & Davies Agency, Inc. v. Davies (1980)).