Minnesota: Non-Compete Agreements Require Additional Consideration Other than Continued Employment

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October 6, 2017

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On October 6, 2017, a Minnesota federal district court emphasized the importance of appropriately presenting restrictive covenants.  Minnesota employers who require employees to sign restrictive covenants, such as a non-compete agreement, have certain obligations to the timing and type of consideration that must be offered with the restrictive covenant.  Specifically, new applicants must be provided the non-compete agreement before accepting the offer of employment, and currently-employed individuals must be provided something of value beyond continued employment as consideration.

In Mid-America Business Systems v. Sanderson, et al., a company hired a temporary employee on an “unwritten” probationary period who was later converted to a permanent position.  At the time of conversion, the company required the employee to sign a non-compete, offering increased pay, additional training, and access to confidential information.  However, the employee denied any knowledge of the probationary period, nor any connection between the alleged consideration and the agreement.

As such, the district court determined that the non-compete agreement was unenforceable.  While the amount of consideration offered would likely have been sufficient, the company erred in failing to inform the employee of the probationary period and the relationship between the increases in pay, training, and access and the non-compete agreement.

Action Items

  1. Have restrictive covenants, e.g., non-compete agreements and non-disclosure agreements, reviewed by legal counsel for compliance.
  2. Revise practices for executing agreements with restrictive covenants to be consistent with this ruling.
  3. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2017 ManagEase, Incorporated.

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