Minnesota businesses often require employees to sign non-solicitation and confidentiality agreements to protect the business’s proprietary information or intellectual property and to prevent employees from using their employer’s information to profit at their own businesses. However, improper and poor drafting of these agreements can demolish their effectiveness.
Minnesota’s statute of frauds governs written agreements which cannot be performed within one year from execution. These agreements, according to the statute of frauds, must set out in writing the benefit – known as consideration – provided to the employee in return for signing the agreement, such as the hiring or promotion of the employee or the use of equipment.
Written consideration is required because it is risky to depend on the memories and truthfulness of witnesses and parties after one year. Even if an employer provided consideration for these types of agreements, the contract could be nullified if this consideration was not expressed in writing in the agreement.
Last summer, the Minnesota Court of Appeals declined to prohibit a hair stylist from soliciting clients from her former employer even though she had signed a non-solicitation and confidentiality agreement with the former employer. The agreement also prohibited her from disclosing information from the employer’s computer system which allowed her access to customer information away from the workplace. Signing the agreement was not optional and it was to remain in effect during her employment and for 24 months afterward.
The Court found that the statute of frauds applied to the agreement. Because no consideration for agreement was expressed in writing and it could not be performed until 24 months after a future unspecified date, the court ruled that it was unenforceable.
Business formation and expansion often relies upon employees keeping information, obtained at the expense of the business and its investors, confidential. Good legal advice can help business enter agreements that are enforceable and allow them to keep the advantages of their innovation and efforts.
Source: Minnesota Court of Appeals, “JAB, Inc. v. Naegle, No. A14-1742 (Minn. Ct. App., July 13, 2015),” accessed Jan. 3, 2016