What’s A Non-Compete Agreement?

man signing agreement

People get a lot of papers to sign when they first hire on with a company. You may, however, be surprised when your new employer presents you with a non-compete agreement, sometimes called a restrictive covenant, as part of the hiring process. Here are a few things you should know about these types of agreements.

Non-compete Agreements/Restrictive Covenants

These can be either a stand-alone agreement or a clause in the hiring agreement. They prohibit an employee from competing with the company for a certain amount of time after that person has left the company. These covenants are considered legal in Minnesota provided the agreement protects a legitimate employer interest, the employee has gotten something out of the agreement, and is reasonable.

The non-compete agreement, or ‘restrictive covenant,’ may have any of the following clauses:

  • Non-competition clause. You may be restricted from working for a competitor, opening a similar business, or anything else that might be considered ‘competing with’ your former employer.
  • Non-solicitation of customers clause. The agreement will prohibit doing business with or selling to their customers.
  • Non-solicitation of customers clause. You might be prohibited from recruiting your old co-workers to work for you or work for your new company.
  • Non-disclosure of confidential information clause. The company might ask you not to divulge their trade secrets.

Legitimate Interests And Considerations

Courts generally agree that a company has a legitimate need to protect customer goodwill, specialized training, and confidential information. The court will also believe that the signing the agreement can be a condition of employment. In other words, getting the job is enough of a reward for signing the agreement. However, if you are already working for the company, they have to give you something more in return for signing. This is called a consideration, and as this court case found, merely continuing to work in a place is not enough of a reward for signing a non-compete agreement.

A court will generally look at a couple of factors when judging if the non-compete agreement is fair.

Scope

What a court will consider reasonable will vary from situation to situation. They generally find that non-solicitation of customer clauses are sensible, but are more restrictive about the other types of clauses.

Duration

The former employer has the right to give their new employee time to get their licenses in order and learn the job. Also, the company can ask to give customers time to forget that they used to employ the person now setting up a competing business. One year agreements are common and often stand up in court. However, as this Lexology articlestates, the duration depends on the circumstances.

Geographical Scope

A company that sells internationally can ask a former employee to not compete with them throughout the world. A local company can only prohibit you from opening your shop down the street from them. The geographical scope can be interpreted to accommodate today’s digital economy as well, narrowing the ‘geographical area’ to former customer’s of the company.

Blue Pencil Doctrine

A court may find that the non-compete agreement that a company is making employees sign is unreasonable. The court may then change the agreement so that it is reasonable. This is called ‘blue pencil’ or ‘reformation’ doctrine, and it means that you might still have to abide by some parts of the agreement.

Wrongful Termination

A non-compete agreement normally still applies whether you quit or if they fire you. Courts, however, have been less willing to enforce non-compete agreements if a person was fired in bad faith or for illegal reasons. It will depend on the circumstances.

If your employer has presented you with a non-compete agreement and you have questions about it, please feel free to contact Villaume & Schiek for a free consultation. We work hard to help Minnesotan employees protect their rights.


Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individualsituation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.