Last February, Representative Joe Atkins introduced a bill, HF 506, which, if passed, would prohibit noncompete agreements in Minnesota. This bill was recently the subject of discussion at a Minnesota House Commerce and Consumer Protection Finance and Policy committee hearing on August 29, 2013. Currently, California and North Dakota are the only other two states that impose similar onerous restrictions on non-compete agreements for employees.
There is a significant body of non-compete case law established in Minnesota, including over 100 cases at the MN Supreme Court level. Courts have narrowly defined what will be allowed in non-competes, and Minnesota judges will rewrite or “blue pencil” these agreements if they consider them too restrictive.
Under the current law in Minnesota, an employer cannot seek to enforce a non-compete that is more than necessary to serve the legitimate interests of the company. Non-competes must legitimately protect either goodwill or confidential information. As for the scope of non-competes, a reasonable time is typically one to two years. Currently, many employers utilize no geographic restrictions because, in the high-tech fields, companies operate and compete worldwide. Most non-competes are intended to protect the companies’ products or customers.
Companies that are headquartered in Minnesota are drafting non-competes to be governed by Minnesota law for all their employees worldwide. Using Minnesota law gives companies the ability to have a uniform set of laws. A change in the law would be a significant change to those industries that mentor and provide professional development through their investments in their employees. States governed by statutes on this issue (California, Texas, Georgia) are arguably no better than states governed by case law like Minnesota, since it takes years to litigate what the Legislature meant by their statutes. Minnesota case law is relatively clear on this issue – and if the Legislature adopts a statute instead, there could be years of uncertainty while it is being litigated.
Takeaway: Employers that utilize non-compete agreements in Minnesota should continue to monitor this potential legislation. Employers with strong opinions on this issue – either in support or against – should consider contacting their local representatives.