Reviewing or Creating a Non-Compete Agreement – Five Considerations

23 Feb

Employers typically want to restrict former employees from immediately going to work for a competing business. In order to do that, a covenant not to compete (also known as a non-compete agreement) can be used.  In determining whether the non-compete agreement is enforceable, consider the following:

Whether Something Was Given in Exchange
In order for a competition restriction to be enforceable, “consideration” had to be given in exchange for that agreement. If a person has not received anything substantial in exchange for the promise to not compete, there is no consideration and the agreement is unenforceable.  While consideration will be analyzed as to each circumstance, payments as little as $500.00 have been deemed sufficient consideration to enforce a covenant not to compete.

When the Covenant Was Signed
There is sufficient consideration where an employee is required to sign a covenant not to compete in order to, and prior to, commencing employment.  If the employee has already begun work when the covenant not to compete is signed, even if only days into the job, there needs to be additional consideration (bonus, raise, promotion) given for the agreement to be enforceable. There is no consideration if an employee is already employed and nothing further is given in exchange for the agreement; mere continued employment is not enough.

Reasonable Size of Restriction
The span of the restriction can be very subjective.  The basic rule is that the restriction cannot be greater than what is necessary to protect the former employer’s legitimate interest.  Courts consider such things as: the relationship between the restricted territory and employer’s current territory; the new duties/job of the former employee and their similarity to the prior position; the amount of customer contact by the former employee; and the resources that had been furnished by the employer.

Reasonable Time of Restriction
The length of a non-compete agreement is also subjective and has the same basic rule of being no greater than necessary to protect the former employer’s legitimate interest.  Factors considered include length and time of restriction compared to length and time of the contract with the former employer.  Each case is looked at independently, but as a reference, restrictions of up to three years have been enforced.

Remedies for Breach
Where “the rubber hits the road” for non-compete agreements is what the consequences are if the agreement is broken.  A well-drafted non-compete will allow the employer the ability to seek an order from the court stopping the former employee from continuing to breach the agreement.  Whether or not damages and attorneys’ fees are recoverable are often determined by the contract as well.

The law in Minnesota does not allow covenants not to compete to be blunt instruments. As a result, there are a number of variables that skilled legal counsel can help assess when putting such an agreement together or determining how to proceed in relation to an agreement into which parties have already entered.  In order to determine how to proceed in constructing such an agreement or determining the enforceability of such an agreement, contact the professionals at Thomsen & Nybeck, P.A.

Author:
This blog entry is written by Chris Renz, a shareholder at Thomsen & Nybeck, P.A. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, townhome and condominium law, and criminal law, particularly as the prosecutor for the Metropolitan Airports Commission.  For more information on employment law, please visit: http://www.tn-law.com/CM/Business-Law/Employment-Law.asp.

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