Minnesota employers are already familiar with Minnesota courts’ limitation of non-compete agreements. Non-compete agreements are contracts that restrict former employees from providing competitive services or working in a similar field. These agreements have been generally disfavored by Minnesota courts for years. Based on this precedent, Minnesota’s judiciary scrutinizes the nature and scope of non-compete agreements to determine whether the restrictions of the agreement are necessary to protect the employer’s business. District courts may narrow the scope of the non-compete agreement or make an outright determination that the non-compete agreement is not enforceable as a remedy. To increase the likelihood that their non-compete agreements will be enforceable, many Minnesota employers have attempted to narrow the scope of the non-compete agreements for their employees by reducing the length of the restriction, reducing the geographical scope of the restriction and limiting the type of employee subject to non-compete restrictions (e.g., employees in sales positions, in executive roles or with access to confidential information and processes).
Even these narrowly tailored non-compete agreements may soon be unenforceable. Employers should now expect federal regulations limiting or banning non-compete agreements. This month, President Biden issued an Executive Order on Promoting Competition in the American Economy. In this Executive Order, the President encourages the Federal Trade Commission to ban or limit non-compete agreements. How the Federal Trade Commission will interpret and implement the President’s “encouragement” remains to be seen. In the interim, employers may be well served by using narrow non-compete agreements with a select group of employees that present the most competitive risk to the employer’s business.
Whether you are an employer or an employee, the attorneys at Sanford, Pierson, Thone & Strean can help guide you through the changes that the July 9, 2021 Executive Order will likely bring to non-compete agreement enforcement.