By Lawrence P. Schaefer |
Post-employment restrictive covenants (which generally include non-competes, non-solicitation, and confidentiality obligations) are disfavored in Minnesota as restraints on competition, and generally won’t be enforced by courts unless they are narrowly tailored to protect legitimate business interests. Despite this disfavored status, these covenants are extremely common, especially in service industries where relationships with existing customers or clients are the lifeblood of a successful company. This blog presents a general overview of the keys to avoiding enforcement of these covenants.
First, the restrictive covenant has to be reasonable in relation to the employee the company seeks to impose the obligation on, as well as the duration and geographic scope of the obligation. If the employee is in a low level position with little ability to develop customer/client relationships, or isn’t exposed to highly confidential or trade secret information, any attempt to impose a restrictive covenant will be very difficult. If the obligation extends for over two years, it is likely unenforceable, and some circumstances could restrict the reasonable time frame to as little as a year. Finally, if the obligation purports to bar the employee from going to a competitor anywhere in the United States, or even to a much smaller geographic area this is beyond the scope of where the employer operates, it is likely unenforceable.
Non-compete Agreements: Understanding Independent Consideration
Second, the covenant has to be supported by “independent consideration” to be enforceable. This means it either has to be imposed before the employee commences work as an express condition of employment, or, if it is imposed mid-stream in the relationship, in Minnesota it has to be supported by “independent consideration” beyond just continued employment. The “adequacy” of this consideration can be pretty nominal (i.e. a promotion to a new position, a raise or bonus not otherwise due, or any tangible employment benefit will likely suffice), but if your employer has simply required you to sign an agreement imposing this kind of obligation without providing any benefit other than continued employment, the obligation is probably unenforceable due to lack of consideration.
Third, events in the workplace since any such restrictive covenant agreement was signed can provide very effective defenses to enforcement. For instance, if the termination decision is an abuse of otherwise at-will discretion, i.e. is discriminatory, retaliatory, or even just manifestly unfair, courts will often consider this an “anticipatory breach” committed by the employer, which voids any non-compete or similar post-termination obligation. Furthermore, when there has been a “material change’ in the employment relationship since the restrictive covenant agreement was signed, courts in other jurisdictions have held that this vitiates the right to enforce these obligations. While this doctrine has not expressly been adopted in Minnesota, past published decisions in this jurisdiction are consistent with this general principle, and a Minnesota court may well be receptive to adopting the “material change” defense.
The lawyers at Schaefer Halleen have decades of experience in assisting client in getting out of restrictive covenant obligations, usually through direct negotiations with the employer, and at little cost to our clients. Don’t assume just because you signed an agreement containing these restrictions that they are enforceable.
