Protecting your Business: The Enforceability of Non-competition, Non-solicitation, and Confidentiality Provisions in Minnesota
Two schools of thought tend to dominate the way employers and employees view the use of restrictive covenants—non-competition, non-solicitation, and confidentiality obligations—in employment agreements.
Some employers view restrictive covenants as just another contract provision, enforceable in court to the same extent as any other provision. Employers in this camp often make the mistake of inserting far broader restrictive covenants into their employment agreements than is necessary to protect their business interests, incorrectly believing that Minnesota courts will automatically enforce these broad restrictions.
At the other end of the spectrum are employers and employees who wrongly believe that restrictive covenants are never or rarely enforceable. These employers fail to include them when hiring new employees, while employees neglect to read and seek legal advice on them when joining a new employer. But the reality is that Minnesota courts will enforce restrictive covenants, provided they are reasonable and supported by adequate consideration.
To determine whether a restrictive covenant is reasonable, Minnesota courts weigh the employer’s interest in protection from unfair competition against the employee’s right to earn a living. To do so, they consider the nature and character of the business at issue, while analyzing these four factors:
- Whether the restraint is necessary for the protection of the business or the goodwill (i.e., customer relationships) of the employer
- Whether the restraint is broader than necessary to adequately protect the employer’s legitimate interests
- The length of the restriction
- The geographic scope of the restriction
Crafting enforceable restrictive covenants that fit your business needs
Although Minnesota courts recognize that restrictive covenants are often necessary to protect an employer’s business, they tend to view non-competition agreements as interfering with free competition in the marketplace. As such, a non-competition agreement that is found to be broader than necessary to protect the employer may not be enforced at all by the court, or may be enforced only to the extent the court believes reasonable.
Instead of non-competition provisions, employers may want to consider a customer-specific non-solicitation provision. Such restrictions, limited to preventing the solicitation of current and prospective clients, are generally seen as a reasonable means of protecting an employer’s business. Therefore, they are more likely to be enforced in most cases.
Based on the size and nature of the employer’s business, it may be a good idea to couple a customer non-solicitation provision with a prohibition against soliciting fellow employees to ensure that a departing employee does not deplete the employer’s workforce. It also may be wise to include an effective prohibition against disclosure or use of confidential business information, particularly in situations where employees are exposed to trade secrets or other private matters.
Because of the close scrutiny paid to restrictive covenants, employers wishing to include these provisions in their employment contracts should hire an attorney who not only knows Minnesota law, but who will also take time to understand the nature of the business at stake and tailor a restrictive covenant suited to the employer’s specific needs.
At Henson Efron, our attorneys have extensive experience drafting and enforcing restrictive covenants, as well as defending employees accused of violating such agreements and the employers that hire them. If you’d like to learn more about how our experience and knowledge can help protect your business, please contact Henson Efron.
The purpose of this article is merely to provide general information and may not be construed as legal advice.
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