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?
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
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.
About the Author: Attorney Aaron Hall is experienced in noncompete agreements and is available to analyze noncompetes or represent parties with noncompetes. He is licensed to practice law in Minnesota. His work is largely in the Twin Cities, Minneapolis and St. Paul, MN. He provides legal counsel to businesses, business owners, and individuals.
