Q. We are hearing rumors that one of our employees may be setting up a new business in the same industry in which we operate. That employee has not signed a noncompete agreement. If he is starting up such a business, is that illegal even without a noncompete?
A. There are certain legal limitations under Minnesota law that apply to all employees concerning activities that compete with their employer’s business—even if the employee has not signed a noncompete agreement.
All employees are subject to a common-law fiduciary duty of loyalty limiting actions that can be properly taken toward setting up a new business or employment opportunity while still employed. Although employees are permitted to take concrete steps toward such a venture—including, for example, the legal formation of a new business and acquiring property and assets to be used in the operation of the business—an employee may not cross the line and actually start competing with his or her employer.
Although it is sometimes difficult to determine where precisely that line is, the employee cannot presell to his employer’s customers or enter into contracts with the customers regarding future business.