Sjoberg & Tebelius, P.A.
Serving Minnesota & Western Wisconsin

4 factors to consider when it comes to enforcing non-competes

Fencing.jpgPhoto cred: Agberto Guimaraes

Non-compete agreements are commonplace in many Minnesota business agreements. That being said, they are not necessary in all cases or appropriate for all employees. 

Before you decide to have an employee sign a non-compete agreement or take legal action against a person who has violated a non-complete agreement, there are some important things you will first want to consider.

  1. Is your non-compete enforceable? If you have an agreement in place, make sure it is properly tailored to your business and can actually be enforced. In Minnesota, the temporal and geographic scope has to be reasonably related to the protection of a legitimate business interest. The analysis will differ depending on the type of industry. For example, a two-year duration may be reasonable for a dentist, but too lengthy for someone in IT, where the industry changes more quickly.
  2. Do the benefits of enforcing the agreement outweigh the cost of litigation? Generally speaking, non-competes are disfavored by the Minnesota courts as an unreasonable restraint on trade. Therefore, even a properly constructed non-compete may be defeated if an employee's breach doesn't actually put the company's interests at risk. For example, there's not much point in pursuing a breaching employee if that employee never had access to the company's confidential information. In fact, there's little basis for having a low-level employee sign a non-compete in the frist place. Litigation is expensive. Use it wisely.
  3. Have you enforced these agreements in the past? If you inconsistently enforce these agreements, or never enforce them at all, consider whether you truly need them. An inconsistent approach is more likely to inspire future breaches, not to mention provide a defense for the breaching party. Treating employees differently could also be used as a basis for a discrimination or retaliation charge. In recent months, Amazon Web Services has faced allegations of biased or arbitrary enforcement of its non-compete agreements, leading many people to take issue when it does choose to enforce them. 
  4. Are there alternatives to consider? Instead of taking immediate legal action for every violation of a non-compete agreement, talk to the employee about his/her/their plans and allow the opportunity to provide clarity about future employment plans. Transparency is often all that is needed to avoid costly litigation.

In conclusion, instead of blindly enforcing terms or always looking the other way when it comes to non-compete agreements, business owners would be wise to consider these questions in order to determine what is in the best interests of the company.

Being deliberate with business tools like non-compete agreements can help an employer utilize resources in the most effective way possible and shield a company from costly mistakes and avoidable disputes.

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