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Non-Compete Contracts

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As the economy continues to improve, albeit shakily, and unemployment rates descend, an increasing number of employers and employees are addressing non-compete contracts. These devices, which restrict future employment, are on the rise for several reasons: the greater mobility of the work force; enhanced technology that facilitates use of business-related data; and the decline by employees to keep key personnel from departing, among other reasons.

The laws affecting non-compete arrangements vary from state–to-state.  In California, for example, they are prohibited.  Courts in some states view them skeptically, while others are more inclined to uphold and enforce them. Minnesota falls somewhere in the middle. The law in this state will uphold non-compete arrangements if they are reasonable, provided they conform to certain fundamental features.

Here are a few tips for both employers and employees in dealing with the issues that often arise in connection with noncompete contracts.

  • To be valid, a noncompete arrangement must be agreed to, in writing, at the very commencement of the employment relationship.  Sometimes, it must be called to the attention of the new employee, even before the employment starts so that the employee is not caught by surprise when beginning work.
  • If not  signed when employment begins, a noncompete is not valid unless the employee receives “independent consideration,” meaning something of real value that would not otherwise be given, such as a bonus and salary increase, promotion, stock options or special training.
  • The scope of a non-compete should not be broader than reasonably necessary to protect the interest of the employee. The employee should not be restricted from working in the industry, but only limited in competitive activities that would harm the employer.
  • Special and greater protection is usually allowed for secrets, and other proprietary data as well as solicitation of current or future employees.
  • There is no specific time that is required, but courts generally will not enforce noncompete for more than 1 or 2 years, and sometimes lesser periods. Greater latitude, and duration, exists in special circumstances, such as the sale of an existing business.
  • There is no specific graphic limit but the restriction generally should not apply to a remote area where customers are not being served. For retail business and services, there may be a 25-50 mile guideline.

Following these tips can help employers and employees navigate the rising tide of non-compete laws. For more information about non-compete agreements and other employment law matters, Marshall Tanick can be contacted at (952) 460-9241 or by email at mtanick@hjlawfirm.com.