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The Current State of Non-Compete Agreements in Minnesota

Minnesota has traditionally been an employee-friendly state on the issue of non-compete agreements. Past court rulings cited the restraint on trade imposed by non-compete contracts when the court decided in favor of employees on these matters.

In light of this position, non-compete agreements are sometimes legal, but must abide by strict standards, including:

  • Independent consideration – The employee must receive a material benefit from the non-compete agreement, unless the contract is signed when the employee begins her or his job.
  • Legitimate employer interest – The contract must serve a legitimate employer interest, such as to protect the employer’s trade secrets or goodwill or to recoup a return on investment in specialized job training.
  • Reasonableness – The terms of the non-compete must be reasonable in their substantive scope, duration and geographic area.
  • Blue pencil rule – The court has authority to alter unreasonable terms of an otherwise enforceable non-compete agreement to make the provisions reasonable.

However, the courts have shifted during the past decade in a series of cases alleging breach of non-compete clauses in these circumstances:

  • Independent contractors – In Schmit Towing, Inc. v. Frovik, the court ruled that the independent consideration principle did not apply to independent contractors who were free to contract as they wish.
  • Cash payment as independent considerationTenant Construction, Inc. v. Mason addressed what is considered adequate consideration – $500 was enough consideration to validate a non-compete agreement in this case.
  • Long-time employment as independent consideration – The appellate court in Witzke v. Mesabi Rehabilitation Services, Inc. considered the employee’s 17 years of promotions, salary increases, training opportunities and job security as sufficient independent consideration.
  • Geographic scope – The court in Medtronic v. Hughes agreed with the former employer that the company competed on a global scale and so the non-compete was not limited to the specific geographic area.
  • Area of marketing – In Sealock v. Petersen, the court enjoined the former employee from marketing in the geographic area restricted by the non-compete agreement, even though his office was physically located outside the restricted area.

Let a Minnesota business litigation lawyer evaluate whether your non-compete agreement is enforceable.