Noncompetes are contracts between an employer and employee prohibiting a worker from being employed by or becoming a competitor for a reasonable amount of time.
These agreements are enforced when the worker’s employment ends, preventing a former employee from competing against or starting a new business in the same market and recruiting former co-workers.
Anatomy of a noncompete agreement
Noncompetes must be fair and equitable to both parties. They should include specific information to be enforceable, including:
- An effective date when the agreement begins
- Justification for the restrictions
- A precise timeframe and location where the contract is in effect
- Compensation for the employee signing the agreement
It is advisable to consult an experienced business law attorney who understands Minnesota labor laws, including the scope and duration typically allowed.
Common challenges to noncompetes
Noncompetes are enforceable in Minnesota, but courts highly scrutinize them. They are generally acceptable when protecting a company’s customer relations and contacts, confidential information and trade secrets. Nondisclosure agreements also protect a company’s proprietary information and are more likely to be upheld by state courts.
Under Minnesota law, noncompete agreements must be reasonable in the amount of time as well as the geographic area included. In some cases, a noncompete may only be enforceable during the time it takes to train the former employee’s replacement, and it can likely only be enforced within the company’s market area. While each case is decided on its own merits, courts typically hold that workers should be allowed employment in their specific industry.
The mutual benefits of a noncompete
Employees must be compensated in return for signing a noncompete. In most cases, these contracts are signed when a new employee comes on board with the benefit being getting hired for the position. If a company wants a current employee to sign a noncompete, they must also offer compensation, such as bonuses or promotions.
Companies also see many potential rewards, such as preventing employees from taking their skills and sensitive information to competitors, reducing turnover by incentivizing valued workers to remain and saving time and money needed to hire and train new employees.