No business owner wants to hire a new employee, provide them with training, and nurture their growth only to have them leave for a job with a competitor. To combat this fiasco, many employers ask their employees to sign a non-compete agreement – a contract that prevents a former employee from performing certain work for a competitor for a period of time in a specific geographic range.
Non-compete agreements often fall under scrutiny because courts view them as a potential restraint on trade. However, an agreement that meets specific standards can still be enforced.
What makes a non-compete valid?
Valid non-competes balance the interests of the employer in protecting their business and the employee’s right to earn a living. Protecting confidential information, trade secrets, or customer goodwill are all seen as legitimate business interests worthy of protection. But, the agreement should also be as narrow as possible so as not to unreasonably restrain the employee from using their skills with a different employer.
Consideration requirements
An employee’s agreement not to compete has value to the employer, so the employer must give the employee something of value in exchange for that restriction. This “something of value” is called “consideration.” If the non-compete is provided at the commencement of employment, the employment itself is the consideration. If the Minnesota non-compete is presented to the employee after they have started working, then additional consideration (beyond the employment) must be given in exchange. (Note: this is not true for all states.) The additional compensation could be a variety of things, such as:
- Pay raise
- New benefits
- A bonus
Scope remains the most common challenge to non-competes in Minnesota
When examining the validity of a non-compete agreement, Minnesota courts look at three essential elements: the duration, the geographic limits, and the practical scope. Generally, a term of two years or less is reasonable. On the other hand, an agreement lasting three years or more will usually be unenforceable.
Geographic limits typically relate to where the employer’s customers are coming from. It is likely unrealistic to restrain the employee from working for competitors within a 100-mile radius of the employer’s main work site if the employer’s customers are all located within a 20-mile radius.
Non-competes are a tricky area of law approached differently by each jurisdiction. In fact, some states don’t allow them at all. Businesses looking to require a non-compete for employees, and employees who are asked to sign such an agreement should seek legal counsel.