Is the non-compete in this Minnesota agreement enforceable?
No, with two statutory exceptions. Minn. Stat. § 181.988, subd. 2(a) provides: 'Any covenant not to compete contained in a contract or agreement is void and unenforceable.' The section defines a covenant not to compete as an agreement between an employee and employer restricting the employee, after termination of the employment, from performing work for another employer for a specified period of time, work in a specified geographical area, or work for another employer in a capacity similar to the employee's work for the employer that is party to the agreement; 'employee' means any individual who performs services for an employer, INCLUDING independent contractors. Notwithstanding subd. 2(a), a covenant not to compete is valid and enforceable if it is agreed upon during the sale of a business (a temporary and geographically restricted covenant, reasonable in area and length of time, barring the seller from carrying on a similar business) or in anticipation of the dissolution of a business. A void covenant does not take the rest of the contract with it: nothing in the subdivision renders void or unenforceable any other provision in an agreement containing a void covenant not to compete.
The trap
The definition is the whole fight, because the ban is drafted around a category, not around a label. Section 181.988, subd. 1(a) says in terms that a covenant not to compete does NOT include a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information, and does NOT include a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer, so those survive § 181.988 and are governed by other law. Three more points from the text: the definition of 'independent contractor' reaches an entity the employer required the individual to form as a condition of receiving compensation, so routing a covenant through a single-member LLC does not escape the section; a court MAY award an employee enforcing rights under the section reasonable attorney fees, which is permissive; and a separate section, § 181.9881, voids a service provider's restriction on a customer soliciting or hiring the provider's employee, subject to an exemption for workers providing professional business consulting for computer software development and related services. DATING: no statute effective dates were available for this rule, and the published text of § 181.988 carries none, so nothing here establishes which covenants by date the ban reaches.
10 authorities
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
Any covenant not to compete contained in a contract or agreement is void and unenforceable.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
"Covenant not to compete" means an agreement between an employee and employer that restricts the employee, after termination of the employment, from performing: (1) work for another employer for a specified period of time; (2) work in a specified geographical area; or (3) work for another employer in a capacity that is similar to the employee's work for the employer that is party to the agreement.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
"Employee" as used in this section means any individual who performs services for an employer, including independent contractors.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
Notwithstanding paragraph (a), a covenant not to compete is valid and enforceable if: (1) the covenant not to compete is agreed upon during the sale of a business. The person selling the business and the partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time; or (2) the covenant not to compete is agreed upon in anticipation of the dissolution of a business. The partners, members, or shareholders, upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation may agree that all or any number of the parties will not carry on a similar business within a reasonable geographic area where the business has been transacted.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
A covenant not to compete does not include a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information. A covenant not to compete does not include a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing rights under this section reasonable attorney fees.
- statuteMinn. Stat. § 181.9881enactment date not established
The words that state the rule
(a) No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider. (b) Any provision of an existing contract that violates paragraph (a) is void and unenforceable.
- statuteMinn. Stat. § 181.988enactment date not established
The words that state the rule
"Independent contractor" means any individual whose employment is governed by a contract and whose compensation is not reported to the Internal Revenue Service on a W-2 form. For purposes of this section, independent contractor also includes any corporation, limited liability corporation, partnership, or other corporate entity when an employer requires an individual to form such an organization for purposes of entering into a contract for services as a condition of receiving compensation under an independent contractor agreement.
- statuteMinn. Stat. § 181.9881enactment date not established
The words that state the rule
This section does not apply to workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.