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Non-Compete Agreements

Non-competes have become commonplace in the workplace and are used to protect the employer’s business, confidential information and trade secrets.  In Minnesota, employment non-compete agreements are looked upon with disfavor and are cautiously considered, and carefully scrutinized. However, non-compete agreements are enforceable if they serve a legitimate employer interest and are not broader than necessary to protect this interest.

In determining whether to enforce a non-compete agreement or provision, the court balances the employer’s interest in protection from unfair competition against the employee’s right to earn a livelihood.  If the employer’s interest outweighs, the non-compete agreement is valid and enforceable.

Minnesota courts will review the facts of each case to determine if a non-compete is valid and enforceable. The first thing to determine is whether the employer provided the employee with adequate consideration for the non-compete. Consideration means the employee received something in return for signing the non-compete. If the non-compete agreement is entered into at the beginning of the employment relationship, the promise of employment will be considered adequate consideration to make the agreement valid.  If the non-compete agreement is entered into after the employment relationship begins, it is not valid unless the employer provided some additional consideration, which would be additional money or another benefit to which the employee was not otherwise entitled.

Second, the Minnesota Courts will review whether the non-compete protects a legitimate business interest.  A non-compete clause will be held valid if it is necessary for the protection of the business or goodwill of the employer and is not broader than necessary to protect this interest.

The types of legitimate business interests that the courts have said are permissible to protect by a non-compete include protecting an employer against an employee capitalizing on the relationship established with the employer’s customers.  Other legitimate business interests that have been protected by a non-compete include preventing the disclosure of confidential information or the potential disclosure or disclosure of trade secrets.  Finally, employers may protect any specialized investment or training that they provide to their employees with non-compete agreements.  The employer must show that it provided the employee with extensive and specialized training. In all cases the court must find that the employer will be irreparably harmed if the business interest is not protected before the non-compete will be held valid and injunctive relief granted.

The third issue the courts review to decide whether a non-compete is enforceable is whether the non-compete is not more restrictive than reasonably necessary to protect the employer’s business given the nature of that business, and the extent of the duration and the geographic scope of the restraint.  If the non-compete is not for a reasonable duration and a reasonable geographical area, the non-compete may be held to be overly broad and not valid and unenforceable.

Almost all non-compete cases are decided in the context of a motion for either a temporary restraining order (TRO) or a temporary injunction.  The courts will decide if the employee should be prevented from engaging in competitive activities and may award damages including, in certain cases, legal expenses.

If you have questions about non-competes, you should contact an employment attorney.

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