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Non-Compete Basics: What You Need to Know

Understanding the difference between non-competition, non-disclosure and non-solicitation agreements is imperative to protecting your business long-term. Learn the intricacies from attorney Anne G. Brown, and reach out if you need help with employment agreements: [email protected].

At least one person calls my office every week asking about a noncompete agreement, either an employer wanting to get her employees to sign one, or an employee wanting to get out of one. Rarely does anyone call before they sign a noncompete, asking about the pros and cons of doing so, or whether or not they should sign it or not, and I really wish they did. I think this is because people are often so eager to jump into employment that they don’t take the time to look just a little bit further down the road. So in the hopes of getting some people to do a little more thinking on this subject, let’s talk about noncompete.

So first, let’s define the terms. A noncompete is related to, but not the same as, a non-solicitation or a nondisclosure agreement. A non-solicitation means you agree not to contact your employer’s employees, and/or your employer’s customers after you leave. A nondisclosure means you won’t disclose your employer’s confidential information to your new employer.

But neither of these limits your ability to find new work. A non-competition agreement, however, could prohibit you from working, and this is a serious matter, so such agreements should not be signed without taking some time to think about them. Generally speaking, a noncompete is a contract by which an employee agrees not to work in the same industry as their employer. The restriction should only be for a defined period of time, usually one to three years. The restrictions should also pertain only to a certain geographic range, which is usually stated in terms of miles. For example, the employee won’t work for a competitor within 15 miles of the employer’s place of business. The range should relate to the business interests the employer is trying to protect. For example, the area in which the employer’s customers reside.

So for example, a dentist living and working in Woodbury who signs a noncompete may find herself unhappy in her employment. She resigns, thinking she’ll join another clinic or even start her own in St. Paul, or Lake Elmo, or Stillwater, any of the east metro. She may then discover that the noncompete she signed several years earlier prevents her from working at a dentist anywhere in the area, and then she’d have to drive 90 miles one way each day to find employment outside the restricted range. This can be quite limiting, and for that reason, the courts don’t like noncompetes, because they are a restraint on trade. However, the courts will enforce them, so long as the restricted time and area are designed to reasonably protect the employer’s legitimate business interests.

So for example, if all the employer’s customers come from Woodbury, a court may find it unreasonable to restrict the employee from working in St. Paul. But these things are determined on a case by case basis. Every employer is different, as are their clientele. For example, an international IT company may have a restricted geographic range that’s anywhere in the world.

So what can an employee do? First, negotiate the terms before you sign one. Second, if you’re already bound, try to renegotiate. Third, if at all possible, look for ways in which the agreement might be determined to be invalid. One of the biggest ways a noncompete may be invalid is if it wasn’t given in exchange for adequate consideration. In other words, the employee is giving up something of value, the future freedom to work anywhere of their choosing. The employer therefore has to give something of value in return.

If you signed a noncompete immediately upon hire, your job is the consideration. But if you didn’t sign a noncompete immediately upon hire, rather the boss came to you sometime later, even a day later, and asked you to sign one, the employment can no longer be that thing of value given to you in exchange for your agreement. At least that’s the rule in Minnesota. Wisconsin and other states hold differently. But in Minnesota, if the noncompete is presented to you after you started working, the employer has to give you something additional. Oftentimes that’s a one-time payment, but it can also be a raise, greater benefits, a promotion, a new title or responsibilities, something, so long as it has value.

So in conclusion, if you are an employer, consider having your employees sign noncompetes immediately upon hire, especially those employees who have great knowledge of your confidential information and those employees who are in a position to develop close relationships with your clients.

Employees, if you are presented with a noncompete or an employment agreement that contains a noncompete, read it, understand it, and don’t sign anything without first considering whether the terms are reasonable to the job you are accepting and your prospects for future work.

Hope you found this information helpful.