4 Elements that Could Make a Noncompete Unenforceable

map.jpgWhether you are a Minnesota employer or employee, noncompete agreements are not something to take lightly.

These documents are impactful on an employer because, if done incorrectly, they leave the employer’s legitimate business interests unprotected. They are impactful on an employee because, if done correctly, they restrict the employee’s ability to find subsequent work.

Below, we look at some of the common reasons why a noncompete agreement may be unenforceable and what business owners can do to avoid this.

  • Too Restrictive – Noncompete agreements are restrictive covenants that are generally disfavored by the courts because they are a restraint on trade. Therefore, be sure the geographic and temporal terms of the agreement are specifically related to the legitimate business interests you want to protect. For example:
    • If your clients all reside within twelve miles of your business, think twice before making the restricted area the entire “State of Minnesota,” or even “twenty-five miles.”
    • If the life of the restriction exceeds two years, be prepared to express why a longer period is necessary.
    • If the employee is not someone who would have had contact with clients or access to significant confidential information, it is not likely they pose a risk to your business interests should they later go work for a competitor. Not every employee should be made to sign a restrictive covenant.
  • Entered into Without Consideration – “Consideration” is that which the employee receives in exchange for signing a document that could restrict his/her/their future employment. Timing is important. If the employee is asked to sign a noncompete as part of the offer of employment, the employment itself is the consideration. In Minnesota, if the employee is already employed by the company when presented with the noncompete, then the employer must offer additional consideration, which is typically cash, an increase in salary or benefits, greater responsibility and authority within the company, or some other benefit of value.
  • Too Vague – As mentioned above, a noncompete agreement must protect the employer’s legitimate business interest(s). If it does not, or if the terms are too broad or vague, then it can be difficult to enforce. Be sure you are able to articulate what you mean to protect and how the restriction accomplishes it.
  • Not Legally Binding – Finally, if a noncompete agreement is not in writing or signed by both parties, then it may not be legally binding. Fraud could also invalidate these agreements.

If your noncompete agreements do not meet these criteria, then you could ultimately leave your business interests unprotected. It could also result in complicated, costly legal battles that divert valuable resources away from the operation of your business.

To avoid these pitfalls and protect your business, business owners can consult an attorney when it comes to any type of contractual agreements with employees and contractors. An attorney experienced in Minnesota business laws can help you examine or create documentation that holds up to legal scrutiny.