Non-compete agreements can be a powerful tool to protect your customer relationships and confidential information. Well-written non-compete agreements are routinely enforced by Minnesota courts despite recent legislative proposals seeking to eliminate them.
Given the enforceability of non-compete agreements in Minnesota, companies who seek to enforce them often wind up in litigation against their former employee and the employee’s new employer. While litigating non-competes can be somewhat unpredictable and expensive, enforcing non-compete agreements is much easier and in turn, less costly if they are well written from the outset.
There are several issues to consider when creating enforceable non-compete agreements. If you do not currently use non-compete agreements, or if you use them and have been thinking it may be time to update your agreements, consider these 10 essential issues.
No. 1 – Consideration: Non-compete agreements must be supported by independent consideration. The easiest way to do this is to offer new employees non-compete agreements before their first day on the job. Contracts are formed through an offer, acceptance and consideration, so the offer is the written agreement presented to the candidate, acceptance happens when the candidate signs the agreement and the consideration for the agreement is the job. “Consideration” is what the employee received in exchange for agreeing not to compete following the end of the employee’s employment.
Business reasons sometimes dictate that employers obtain non-compete agreements from an employee after the employee has already worked at the company for a period of time. In such cases, it is important that the employer provide the employee with some form of independent consideration, such as a promotion where the employee will take on increased job responsibilities or customer relationships, a lump sum dollar amount, a company vehicle, or some other benefit that the employee did not have before entering into the agreement.
No. 2 – Time/Duration of Restriction: The time/duration component refers to the length of the non-compete period. The key here is to balance your company’s need to protect its confidential information and customer relationships with the employee’s right to work and earn a living. As a general rule, the shorter the duration of the restriction, the more likely the restriction will be enforced. Between six months and two years may be reasonable depending on the position. In Minnesota, most enforceable non-competes prohibit the former employee from competing with his or her former employer for somewhere between one and two years.
No. 3 – Restricted Activities: It is important to be somewhat specific about what the employee cannot do during the period of the restrictive covenant (i.e., noncompete). Many non-compete agreements contain prohibitions on soliciting customers and employees. Most non-compete agreements prohibit the former employee from activities, such as “competing, soliciting, offering, selling,” etc. Often the language is broadly worded, however, prohibiting the activities “directly or indirectly.” This prevents the employee from doing an end-run around the agreement by competing through someone else. Read more.