A bill before the Minnesota House of Representatives would severely curb employers’ ability to force employees to sign noncompete agreements. The legislation, patterned after laws on the books in California and Montana, would ban a contract that prohibits a party from exercising a lawful, profession, trade, or business except when:
- One of the parties—in this case the employee—agrees not to compete against the employer for business with the same customers in a specific territory.
- Business partners who are dissolving a partnership agree not to compete in areas where the partnership conducted business.
- Members of a limited liability company agree not to compete following dissolution or termination of their membership interest.
In both California and Montana, true noncompete agreements are not valid. Montana allows very narrowly constructed nonsolicitation agreements, but California does not.
The Minnesota bill, H.F. 506, probably faces an uphill battle to pass. High-tech companies such as medical device and imaging companies rely heavily on noncompetes to prevent highly talented employees from leaving and targeting their customers. Those tech firms are already lobbying heavily against passage.
Note: Generally, noncompete agreements must be reasonable in terms of length of time and geographic area. However, what is reasonable in one industry may be outrageous in another. Have your attorney review every noncompete agreement you ask an employee to sign, to make sure they reflect the current market for that employee’s skills.