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Excessive Use of Overly Broad Non-Compete Agreements being Called into Question

Non-compete agreements, a certain type of restrictive covenant, have been somewhat common between employers and employees for decades. But the use of non-competes, particularly very broad and restrictive ones, has spread expansively in recent years.

Initially designed to be a fair tool for employers to maintain certain key trade secrets and essential client bases, non-competes were originally contracts that employees voluntarily entered into and were paid a fair amount in exchange for doing so. Over the years, however, non-competes have become virtually mandatory and restrict employees from being able to leave their employer in exchange for nothing—typically only in exchange for “continued employment,” which is essentially value-less when employment is “at will.”

Moreover, while non-competes used to be limited to certain fields—such as highly technical scientific or intellectual property fields, or valuable high-level sales roles—they are now becoming common place in almost every conceivable area of work, from delivery drivers to journalists to hair stylists.

The proliferation of non-compete agreements, and their use as a tool to pressure employees into staying for worse terms and conditions of employment are finally starting to be called into question. As a recent article notes, the use of non-competes is becoming “outrageous,” and is catching the attention of attorneys general, the media, and hopefully courts as well.

Non-competes have historically been enforced quite strictly and rigidly, especially in Minnesota. If you are asked to sign a non-compete, or if you have already signed one and have questions about it, please contact us today because there are many nuances and laws that may apply, and the field may be changing significantly in the near future.

Minnesota Court of Appeals Holds Restrictive Covenant against Employee Not Enforceable

In a potentially significant case, the Minnesota Court of Appeals held that a non-solicitation agreement was not enforceable because it did not include specific reference to consideration in exchange for the agreement not to solicit within the agreement. The case, JAB, Inc. v. Naegle, resulted in the employee’s non-solicitation agreement being unenforceable.

Under basic principles of contract law, a contract (including an agreement for a non-compete or non-solicitation) requires consideration. This means that both parties receive something in return–here, the employer received the agreement not to solicit employees after the employee left the company, but the agreement did not provide anything to the employee in return. The important rule from Naegle is that, when a contract that cannot be fully performed within one year (such as a two year non-solicitation agreement), then the contract must include express reference to the consideration within the contract or it is not enforceable.

Click here for a copy of the full Court of Appeals decision. If you have questions about a non-solicitation agreement, a non-compete agreement, or any other employment law questions, please contact Teske Katz Kitzer & Rochel today for a free consultation.