When Are Non-Compete Agreements in Contracts Valid?

Dunlap Law Insights

Both employers and workers in Minnesota have good reason to wonder about the legal validity of non-compete agreements. For those unfamiliar with the term, a non-compete agreement is a clause in an employment contract or sometimes a free-standing separate document that protects employers at the end of an employment relationship.

Non-compete agreements help ensure that employees cannot take business secrets, client lists and proprietary information to a competitor. Essentially, a non-compete agreement protects the intellectual property and business practices of employers in the event that they must terminate someone’s employment or a staff member chooses to quit.

Understanding how Minnesota courts handle non-compete agreements can help both employees and employers make more informed decisions about employment relationships in Minnesota.

Typically, staff has to sign a non-compete agreement right away

If a company expects a new employee to submit to a non-compete agreement as part of their standard work contract and does not offer any special considerations for executing a non-compete agreement, the company needs to have the employees sign the agreement as part of the initial hiring paperwork.

In other words, the employee should be aware of the non-compete at the time that they begin their employment and when they accept their job offer.

Non-compete agreements performed later have special requirements

If a business in Minnesota wants an existing employee to submit to the requirements of a non-compete agreement, they have to offer a valuable consideration in return for the concessions on the part of their employee. Many times, employers may require the execution of a non-compete agreement as a condition of accepting an increase in pay, a special bonus or a new position with the company.

In that scenario, the employer receives the protection of the contract, while the employee receives the benefit of the new pay or position.

Non-compete agreements need specific language

In order for the courts to uphold the non-compete agreement, it must have specific obligations for the employee. For example, a non-compete agreement should limit an employee’s work decisions for only a specific period of time, likely a year.

Additionally, businesses can only restrict an employee’s options in a certain field or geographic area. Broad non-compete agreements that completely prevent someone from obtaining any form of employment that uses their skills likely won’t stand up in court. If the restrictions are unreasonable, an employee can likely challenge the agreement.

Establishing the validity of a non-compete agreement

Whether you are a company that needs to take action against an employee who now works for a competitor or an employee who needs to secure a new job after losing one, knowing whether a non-compete agreement is legally sound is the first step. Consulting with an employment law attorney before making any decisions is typically the best way to proceed.