Minnesota
NonCompete Law
Minnesota Non-Compete Frequently Asked Questions (FAQ's)

Scroll down for answers to the following frequently asked questions about Minnesota non-compete agreements:

What is a Non-Compete Agreement?

Are Non-Compete Agreements Enforceable in Minnesota?

What is "Consideration" for a Non-Compete Agreement?

What is a "Legitimate Employer Interest" For a Non-Compete Agreement?

Does a Non-Compete Agreement Have to be Reasonable?

What is a Reasonable Substantive Scope for a Non-Compete Agreement?

What is a Reasonable Duration for a Non-Compete Agreement?

What is a Reasonable Geographic Scope for a Non-Compete Agreement?

What is the "Blue Pencil Doctrine"?

What is a "Cease and Desist Letter"?

What is "Injunctive Relief"?


What is a "Temporary Restraining Order" or TRO?

What is a "Temporary Injunction" (Sometimes Called Preliminary Injunction)?

What is a "Permanent Injunction"?

Is the Lawsuit Over After the Temporary Restraining Order (TRO) Hearing?

Can the Employer Enforce a Non-Compete Agreement if I Was Fired or Laid Off?

Can the Employer Enforce a Non-Compete Agreement if Other Employees Were Not Required to Sign a Non-Compete?

Can the Employer Selectively Enforce Non-Compete Agreements?

Can the New Employer be Sued for Hiring Someone With a Non-Compete Agreement?

Who Must Pay the Legal Fees in a Non-Compete Lawsuit?

What are "Liquidated Damages" in a Non-Compete Agreement?

What is a Non-Compete Agreement? 

A non-compete agreement is a special type of contract that generally prohibits an employee from competing against his or her employer for a period of time after the employment relationship ends. A non-compete agreement or "restrictive covenant" may be contained in a stand-alone contract, or it may be part of a broader written employment agreement.  Other commonly used terminology to describe such agreements includes:

  • non-compete agreement
  • noncompete agreement
  • non compete agreements
  • noncompetition agreement
  • non-competition agreements
  • non competition agreement
  • no compete agreement
  • non-solicitation agreement
  • nonsolicitation agreement
  • non solicitation agreement
  • non-disclosure agreement
  • nondisclosure agreement
  • non disclosure agreements
  • non-recruitment agreements
  • anti-raiding agreements

Are Non-Compete Agreements Enforceable in Minnesota? 

Yes.  Contrary to popular opinion, non-compete agreements are enforceable under Minnesota law in many circumstances.  While Minnesota courts often state that non-compete agreements are disfavored under the law and should be narrowly construed, in practice, non-compete agreements are commonly enforced in Minnesota.  To be enforceable, the non-compete agreement must be supported by "consideration," must protect a legitimate employer interest, and must be reasonable in scope, duration, and geographic territory.

What is "Consideration" for a Non-Compete Agreement? 

A non-compete agreement must be supported by adequate "consideration" in order to be enforceable under Minnesota law.  Consideration means that the employee has received something valuable in exchange for signing the non-compete agreement.  Minnesota courts have developed special rules for determining if a non-compete agreement is supported by adequate consideration.

To be supported by adequate consideration under Minnesota law, the non-compete agreement generally must be entered into ancillary to the commencement of the employment relationship; otherwise the non-compete agreement must be supported by independent consideration beyond mere continuation of employment if the agreement is entered into after the employment relationship begins.

Properly structured at the beginning of the employment relationship, employers should require the non-compete agreement to be signed as a condition of employment prior to the employee's first day of work.  Many employers have attempted to enforce a non-compete agreement only to find out that it is not enforceable because the employee verbally accepted the job offer before the employer presented the non-compete agreement . . . or because the non-compete agreement was signed after the employee started working.
 

If the employee has already started working, in most cases the employer must provide the employee with something beyond mere continuation of employment to enforce such a "mid-stream" non-compete agreement.  For example, the employer could provide the employee with a significant raise, promotion, lump sum bonus, incentive compensation, access to trade secrets, assignment of "house accounts," or enter into a written employment agreement protecting the employee against termination without cause, or any other significant benefit.  The courts will analyze whether the employer and employee negotiated over the consideration and whether it provided the employee with real and meaningful benefits.

In some very narrow circumstances, Minnesota courts will find consideration for a "mid-stream" non-compete agreement otherwise lacking consideration if the employee subsequently received compensation or benefits that would not have been bestowed upon the employee in the absence of the non-compete agreement.  For example, when the employer retained the employee for many years or decades following execution of the non-compete agreement, or promoted the employee into a high-level position in reliance on the employee's non-compete agreement, the courts might find adequate consideration.  Generally, however, the courts will require the employer to prove that the employee received meaningful consideration at the time the agreement was entered into (rather than after the fact).

Determining whether a non-compete agreement is supported by adequate consideration is a critical exercise that requires legal advice with someone familiar with non-compete court decisions under Minnesota law.  Even if the employee signed the agreement, it might not be enforceable if the agreement is not supported by adequate legal consideration as defined by the Minnesota courts.

What is a "Legitimate Employer Interest" For a Non-Compete Agreement? 


To be enforceable under Minnesota law, a non-compete agreement must serve a legitimate employer interest.  Minnesota courts have recognized three types of legitimate employer interests: (1) the protection of the employer's confidential information and/or trade secrets; (2) the protection of the employer's customer goodwill and relationships; and (3) specialized training.

Confidential Information and Trade Secrets

Protecting confidential business information and/or trade secrets is considered a legitimate employer interest that can be protected by a non-compete agreement in Minnesota.  If the employee had access to the company's confidential information and/or trade secrets (e.g., customer information, pricing, marketing strategies, financial information, new product development, unique manufacturing methods, or technical information), it is likely that the court will conclude that the non-compete agreement is designed to protect the secrecy of that information by prohibiting the employee from working for a competitor or sharing such information with third parties.  Under Minnesota law, a non-compete agreement can serve to protect confidential information even if such information does not rise to the level of a "trade secret" under the Minnesota Uniform Trade Secrets Act.

Customer Goodwill


Protecting customer goodwill and relationships is considered a legitimate employer interest that can be protected by a non-compete agreement in Minnesota.  If the employee had significant customer contact and thereby helped develop the company's goodwill with its customers, it is likely that the court will determine that the non-compete agreement is designed to protect a legitimate employer interest in the form of the employer's goodwill.  The notion is that the employer is compensating the employee for building customer goodwill, and the employee should not be allowed to seize upon this goodwill by diverting the employer's customers to a competitor after the employment relationship ends.

Specialized Training


In some situations, the Minnesota courts have recognized special training provided by the employer to the employee as a legitimate employer interest that may be protected through a non-compete agreement.  The training, however, must be specialized and cannot be the type of garden variety "on the job training" that an employee in the same industry would learn almost anywhere.

Properly utilized, most non-compete agreements protect a legitimate employer interest.  However, if the employer requires low level employees with no access to sensitive company information and little or no customer contact to sign a non-compete agreement, the court may conclude that the agreement is not designed to protect a legitimate employer interest and is therefore unenforceable.  Employers should avoid the temptation of requiring all employees to sign a non-compete agreement; very rarely will this be appropriate.

Remember that, even if the Minnesota court finds that the non-compete agreement protects a legitimate employer interest, the court can still decide that the restrictions contained in the agreement are overly broad and unreasonable.  See the discussion of the "blue pencil doctrine" below.  At this stage of the analysis, the employer must merely demonstrate one or more legitimate interest is being protected.


Does a Non-Compete Agreement Have to be Reasonable? 


In addition to the necessity of proving the existence of adequate legal consideration and a legitimate employer interest, the employer must show that the non-compete agreement is reasonable before the agreement will be enforced under Minnesota law.  To determine if the agreement is reasonable, the court will scrutinize the substantive scope of the restrictions, the duration or length of time of the restrictions, and the geographic territory in which the restrictions will apply.  Each of these topics is covered in depth below.


What is a Reasonable Substantive Scope for a Non-Compete Agreement? 


The substantive scope of a non-compete agreement will differ greatly from agreement-to-agreement, industry-to-industry, and employer-to-employer.  The scope of some agreements is very broad and will prohibit any form of competition by the employee without specifically outlining what activities are prohibited.  Other non-compete agreements will specifically prohibit the employee from working for, owning, operating, or assisting a competitor.  Finally, some agreements are narrower in scope and will only prohibit the employee from soliciting the employer's customers (or the subset of customers that the employee worked with or about which the employee gained confidential information).  Ultimately, the court must decide whether the restrictions are reasonable and necessary given the legitimate business interests that the employer is trying to protect with the agreement. 

Minnesota courts will often find that a restriction against the solicitation of the employer’s customers is reasonable.  Sometimes, the courts will not uphold restrictions that prohibit the employee from working for a competitor or staying in the same industry, especially when the employee already had experience in the same industry prior to joining the employer and where there is a large competitive market with numerous customers to be pursued.  The thinking is that as long as the employee does not divert or steal away his former employer's customers, he should be allowed to earn a living in the same industry and will not cause much harm to his former employer.


What is a Reasonable Duration for a Non-Compete Agreement? 


The duration of a non-compete agreement must be reasonable in order to be enforceable under Minnesota law.  The length of the non-compete agreement will be considered reasonable if it approximates the length of time the employer will need to hire and train the employee's replacement and to obliterate the association between the employer and the employee in the mind of the company's customers.  In other words, the employer must be given a fair amount of time to hire, train, and introduce the employee's replacement to the customers before the former employee will be allowed to call on the customers again.

While there is no statute in Minnesota dictating how many years will be considered reasonable for a non-compete agreement, the Minnesota courts almost always hold that a one (1) year non-compete agreement is reasonable.  Two (2) year non-compete agreements are sometimes found reasonable; although some Minnesota courts have struck down such agreements.  Three (3) year non-compete agreements are typically deemed unreasonable by the Minnesota courts.  These are general guidelines and should not be used to guide your particular situation.  Ultimately, the court must decide what is reasonable and has the power to shorten or "blue pencil" the agreement as discussed below.

In addition, courts will often enforce lengthy non-compete agreements exceeding five (5) years if the agreement has been entered into as part of a business sale.  For example, if a business owner sells her company and signs a lengthy non-compete agreement with the buyer, the courts are likely to enforce the agreement for five (5) or more years even though such an agreement would be considered unreasonable for a garden-variety employee.  In the sale-of-business context, it will be presumed that the parties have more equal bargaining power.


What is a Reasonable Geographic Scope for a Non-Compete Agreement? 


As a general rule, a non-compete agreement must contain a reasonable geographic limitation to be enforceable under Minnesota law.  It is difficult to predict what type of geographic scope will be considered reasonable; much depends on the nature of the employer's business, the location of its customers, and where the employee performed his or her services.

In some cases, a nationwide (or even broader) geographic scope might be deemed reasonable.  In other words, the geographic scope might need to be limited to a certain number of miles from where the employee performed his or her services.

A wrinkle to the general rule involves non-compete agreements designed merely to protect the former employer's customers.  Minnesota courts have held that a geographic limitation can be replaced by a narrowly tailored restriction against soliciting the employer's customers (wherever located).  For example, if the non-compete agreement merely prohibits the employee from soliciting the employer's customers, it need not contain a geographic limitation to be enforceable under Minnesota law.

With the advent of the internet, advancements in computer technology, telecommunications improvements, and readily accessible air travel, the courts in Minnesota seem to be relaxing the requirement of a reasonable geographic scope for non-compete agreements.  In today's economy, employees can do much competitive damage thousands of miles away with only a telephone and a computer.

In cases where the former employer's business and customer base is very localized (e.g., a restaurant or small retail store), the courts will still demand that the restrictions contained in the non-compete agreement contain a reasonable geographic scope.


What is the "Blue Pencil Doctrine"? 


If a Minnesota court finds a non-compete unreasonably broad, the court can "blue pencil" the agreement by reducing the scope, duration, and/or geographic limits of the agreement to the minimum extent necessary to make it reasonable.  This is called the "blue pencil doctrine".

For example, if the non-compete agreement by its own terms lasts three (3) years, the court could blue pencil the agreement by shortening the duration of the restrictions to one (1) year.  Similarly, if the non-compete agreement prohibits the employee from competing anywhere in the State of Minnesota, the court could blue pencil the agreement by prohibiting the employee from competing within the Twin Cities Metropolitan Area but allowing competition outside of Minneapolis and St. Paul.  Finally, if the non-compete agreement prohibits the employee from working for a competitor in the industry, the court could blue pencil the agreement to allow the employee to keep a job with a competitor so long as the employee does not call on the former employer's customers.  These are just examples.

Often, litigation over the "blue pencil doctrine" is the heart of a lawsuit interpreting a non-compete agreement under Minnesota law.  Even if the agreement is supported by adequate consideration and is designed to protect a legitimate employer interest, the court can still strike down portions of the non-compete agreement that are deemed unreasonable under Minnesota law.


What is a "Cease and Desist Letter"? 


When an employee subject to a non-compete agreement accepts employment with a competitor, the former employer (or its attorney) often sends a letter to the employee and his/her new employer demanding that they cease and desist from violating the non-compete agreement.  This is called a "cease and desist" letter.  If you have received a cease and desist letter, take it very seriously.  The time to act is now.  Do not ignore the letter.  Hire an attorney immediately.  As you will see below, the cease and desist letter is often the last stop before the former employer sues the employee and his/her new employer.  Once the lawsuit is started, the defendants will often be caught off guard and it could be more difficult to negotiate a compromise because the former employer will have already invested significantly in the case.


What is "Injunctive Relief"? 


In order to enforce a non-compete agreement, the former employer may choose to start a lawsuit against the employee and his or her new employer.  In a typical non-compete lawsuit, the case will be scheduled for trial approximately twelve (12) to eighteen (18) months after the lawsuit has been started.  In the meantime, however, the employee may cause irreparable damage to the former employer by diverting customers or revealing confidential business information to his/her new employer.  

For these reasons, many employers seek immediate injunctive relief at the time the lawsuit is started.  There are several types of injunctive relief that can be requested and/or granted during a non-compete lawsuit:  a Temporary Restraining Order, a Temporary Injunction, and a Permanent Injunction.  These remedies are considered "equitable relief" and can be granted in the court's discretion after applying legal standards developed over many years by the Minnesota courts.


What is a "Temporary Restraining Order" or TRO? 


Under the Minnesota Rules of Civil Procedure and the Federal Rules of Civil Procedure, the former employer can bring a motion for a Temporary Restraining Order (TRO) and obtain an emergency hearing before a judge very soon after the case is filed . . . sometimes even the same day.  Often, the former employer and its attorneys have the advantage of surprise because they can prepare their legal papers for days or even weeks before starting the lawsuit and filing the TRO motion.  In many cases, the former employee and his/her new employer are caught off guard.

In order to obtain a Temporary Restraining Order, the employer must establish five factors.  The most important factors are (1) likelihood of success on the merits; and (2) the balance of harms.  To show a likelihood of success on the merits, the employer must demonstrate that it is likely to succeed on one or more of the legal claims asserted in the lawsuit (e.g., breach of contract).  To demonstrate that the balance of harms weighs in favor of granting the TRO, the employer must show that the harm likely to be suffered by the employer if the TRO is denied will be greater than the harm suffered by the employee if the TRO is granted.  This requires a balancing of the interests of the employer and employee.  In addition, in order to obtain a TRO, the employer must show that it will suffer irreparable harm if the injunction is denied.  Under Minnesota law, irreparable harm can be inferred from evidence that the employee is breaching a valid non-compete agreement.


What is a "Temporary Injunction" (Sometimes Called Preliminary Injunction)? 


Following the TRO hearing, the case will typically (but not always) be set on for a Temporary Injunction (TI) hearing within approximately two weeks.  The Temporary Injunction hearing is typically designed to provide the employee and his new employer to introduce affidavits, exhibits, and legal arguments that could not be provided to the court at the emergency TRO hearing.  If a Temporary Injunction is issued, it will typically last until the case goes to trial; whereas the TRO is usually a temporary court order designed to last only a short period of time.


What is a "Permanent Injunction"? 


If and when the case goes to trial, the court has the power to issue a Permanent Injunction.  The term "Permanent Injunction" is somewhat misleading, because Minnesota courts rarely enter injunctions that last forever.  Rather, the Permanent Injunction (if granted) is the final court order granting injunctive relief in the case.  For example, if the court upholds a two (2) year non-compete agreement, it might enter a Permanent Injunction compelling the employee to honor the remaining term of the agreement following the trial (assuming the agreement has not yet expired).  The Permanent Injunction might also order the employee to return and refrain from using or disclosing the former employer's confidential information and trade secrets.


Is the Lawsuit Over After the Temporary Restraining Order (TRO) Hearing? 


Many employers and employees alike assume that once the court rules on the motion for Temporary Restraining Order (TRO), the case is over.  This is not the case.  In order for the employer to bring a motion for injunctive relief to begin with, the employer must commence a lawsuit against the employee (and often joins the employee's new employer as a defendant).  Regardless of who wins the TRO hearing, the lawsuit itself still continues.  Typically, Minnesota court cases are scheduled for trial twelve (12) to eighteen (18) months after they are filed.  Therefore, regardless of the outcome of the TRO hearing, both the employer and employee may be in for a long court fight following the TRO hearing.

Also, it is important to keep in mind that the TRO and/or Temporary Injunction are only preliminary court orders and do not guarantee the outcome at trial.  For example, based on the limited evidence presented, the court might grant the TRO on the basis that the employer is likely to prevail at trial.  Later, during the trial, however, the employee might prove that the non-compete agreement was not supported by legal consideration or is otherwise invalid.  In such case, the injunction will be lifted and the former employer might be ordered to pay the employee for the damages that were suffered due to the injunction (e.g., lost wages and benefits during the pendency of the injunction).

On the flip side of the coin, if the court denies the TRO motion, it does not guarantee that the employee will win at trial.  This is very important for the employee and his/her new employer to understand.  For example, if the court denies the TRO and the employee continues to divert customers and business from the former employer, the former employer still might win the case at trial.  At that time, the former employer can be awarded damages for all of the lost profits that were caused by the employee's breach of the non-compete agreement.  This is true even if the court originally refused to enter an injunction preventing the employee from soliciting the customers.  The employee must understand that by denying the TRO, the court is not granting the employee legal permission to compete against the former employer without potential legal liability.  Rather, the court is merely stating that based on the evidence presented thus far, the employer has not satisfied the legal test for obtaining an injunction during the pendency of the lawsuit.  Thus, even if the employee wins the TRO motion, careful consideration should be given to whether the employee should aggressively pursue customers while the lawsuit is pending.

Having said all of that, oftentimes the case will settle shortly after the TRO or Temporary Injunction hearing.  If the former employer obtains a TRO and/or Temporary Injunction, it may negotiate a settlement with the employee whereby the employee agrees to honor some or all of the provisions of the non-compete agreement for the remaining term of the agreement.  The former employer might also demand that the employee pay damages and/or attorney's fees.  Conversely, if the employee wins the TRO hearing, the former employer might agree to drop the lawsuit or settle the lawsuit on terms that are relatively favorable to the employee and his/her new employer.


Can the Employer Enforce a Non-Compete Agreement if I Was Fired or Laid Off?  


Most non-compete agreements, by their own terms, prohibit the employee from competing against the employer following termination of the employment relationship regardless of whether the employee quit, was fired, or was laid off.  Many employees assume that if they were fired, the employer cannot enforce the non-compete agreement.  This is simply not true.  In many cases, Minnesota courts will enforce a non-compete agreement against an employee even if the employee was terminated.  In some situations, however, the circumstances surrounding the employee's termination may influence the court's willingness to enforce the non-compete agreement.  For example, if the employee was fired under circumstances that amount to wrongful termination (e.g., unlawful race, sex, or disability discrimination) or in bad faith, the court might refuse to enforce the non-compete agreement.  In addition, if the employee was terminated for inability to do the job, this might be used as evidence that the employee will not pose a risk of causing irreparable harm to the employer if allowed to compete.


Can the Employer Enforce a Non-Compete Agreement if Other Employees Were Not Required to Sign a Non-Compete? 


As discussed in detail above, an employer must demonstrate one or more legitimate employer interests that are being protected by the non-compete agreement (generally, protection of confidential information, protection of customer goodwill, or specialized training).  In addition, to obtain a Temporary Restraining Order (TRO) or Temporary Injunction, the employer must show that it will suffer irreparable harm if the injunctive relief is not granted.  Thus, evidence that similarly situated employees were not required to sign a non-compete agreement can weaken the employer's chances of success.  While this type of evidence, alone, may not be conclusive, the employee can argue that the non-compete agreement is not necessary or reasonable as demonstrated by the fact that other similarly situated employees in the same company are not bound by non-compete agreements.  The employee can also argue that the employer will not suffer irreparable harm if the motion for injunctive relief is denied, as evidenced by the fact that the employer allows many other employees to leave the company without restriction.


Can the Employer Selectively Enforce Non-Compete Agreements? 


The answer to this question is very similar to the answer above.  If the employer selectively enforces its non-compete agreements against a small number of employees, but ignores violations of its non-compete agreements by many other employees, the Minnesota court may conclude that the non-compete agreement is invalid.  Remember that the employer must show that the non-compete agreement is reasonably necessary to protect its legitimate employer interests and no broader than necessary.  Evidence that the employer has systematically ignored violations of its non-compete agreement by similarly situated employees can be very disastrous to the employer when it finally chooses to take legal action against one of the departed employees.  While this line of argument does not guarantee victory for the employee, Minnesota courts have considered evidence of selective enforcement when refusing to enforce non-compete agreements.  

For the reasons discussed above, Minnesota employers should not require every employee in the company to sign a non-compete agreement.  While the employer may be tempted to do so, in the end this strategy will likely backfire because the employer will not take action to enforce the agreement against everyone who leaves the company and goes to a competitor.  By the time an employee who poses a real danger joins a competitor, the employer will have established a long track record of not enforcing its non-compete agreement.  A much better strategy is for the employer to draft a narrowly tailored non-compete agreement for the key employees of the company (e.g., upper level management, employees with access to technical information and trade secrets, and the sales force).


Can the New Employer be Sued for Hiring Someone With a Non-Compete Agreement? 


Assume that the employee works for Company A.  The employee signs a valid non-compete agreement prohibiting the employee from working for a competitor for one (1) year following termination of employment.  Later, the employee quits and applies for a job at Company B (a competitor).  Can Company B lawfully hire the employee even though the employee is subject to a non-compete agreement?  This is an important question.  For purpose of answering this question, it will be assumed that the employee's non-compete agreement is valid and enforceable.  (That will not always be the case for all of the reasons discussed on this website.)

Company B can be sued for hiring the employee if Company B knew about the non-compete agreement and wrongfully induced or encouraged the employee to breach the restrictions contained in the agreement.  This is called "tortious interference with contractual relations."  The theory is that when Company B hired the employee -- knowing that the employee had a non-compete agreement -- Company B was interfering with a contract between Company A and the employee (namely, the non-compete agreement).  The key is whether Company B knew about the non-compete agreement and engaged in some type of wrongful act to encourage the employee to break the non-compete agreement.  This theory might also apply when the new employer finds out about the non-compete agreement only after the employee is hired.  For example, if the former employer sends a "cease and desist letter" to the new employer stating that the employee is subject to a valid non-compete agreement (or attaches a copy), the new employer might be liable under the tortious interference theory if it encourages the employee to keep working for it.

The important lesson is that both the employee and the new employer will often be sued when the employee takes a job in breach of a non-compete agreement.  Even if the agreement is invalid for some reason, the employee and his/her new employer will incur legal fees defending themselves in the lawsuit.  Thus, a company should be very careful before hiring an employee who is subject to a non-compete agreement.


Who Must Pay the Legal Fees in a Non-Compete Lawsuit? 


Many non-compete agreements provide that if the employer successfully enforces the non-compete agreement against the employee, the employer can recover its reasonable attorney's fees and court costs.  These clauses are typically enforceable under Minnesota law.  Thus, the employee runs the risk of paying his/her own attorney's fees, as well as the employer's attorney's fees, if the employee loses the case.  Non-compete disputes are notoriously contentious, hard-fought, and expensive.  It is not uncommon for employers and employees each to spend $30,000 - $50,000 or more through the TRO / Temporary Injunction stage of the lawsuit.  Through trial, one side's attorney's fees and costs could easily exceed $100,000 or more.  If computer forensics experts and/or damages experts are needed, the cost can be even greater.

In addition, the employee's new employer can be held responsible for paying the former employer's legal fees and costs.  If the former employer can show that the new employer hired the employee (or continued to employ the employee) following notice of the non-compete agreement, the new employer can be held responsible for paying the former employer's legal fees under a theory called "tortious interference with contractual relations."  This theory is discussed in further detail under the heading above "Can a Company be Sued for Hiring Someone With a Non-Compete Agreement?"

What are "Liquidated Damages" in a Non-Compete Agreement? 


If an employee breaches a non-compete agreement, the former employer can recover damages caused by the breach.  Typically, the damages available are the profits lost by the former employer.  Some non-compete agreements, however, contain a "liquidated damages" clause stating that in the event of a breach, the employee must pay the former employer a stated sum of money (either a dollar figure or perhaps something like "one year's worth of sales revenues from each customer solicited by the employee in breach of the non-compete agreement").

Are these "liquidated damages" clauses enforceable under Minnesota law?  It depends.  If the non-compete agreement is otherwise valid, and the formula for calculating liquidated damages is a reasonable approximation of the actual damages that would be suffered by the employer for the breach, the clause will be enforceable.  However, if the amount of liquidated damages stated in the contract is not closely related to the actual damages expected from the employee's breach, the liquidated damages clause can be thrown out as an illegal penalty.  To put it differently, liquidated damages clauses that are designed to fairly compensate the employer for actual harm are enforced . . . But clauses that are designed primarily to punish the employee without bearing a close relationship to the employer's expected damages are unenforceable.

© 2009 – 2013 Trepanier MacGillis Battina P.A.

Minnesota non-compete attorney Craig W. Trepanier of the Minnesota non-compete law firm of Trepanier MacGillis Battina P.A. in Minneapolis, Minnesota represents both employers and individual employees in the Twin Cities and Greater Minnesota area regarding Minnesota non-compete agreements, Minnesota non-competition agreements, Minnesota non-solicitation agreements, Minnesota non-disclosure agreements, Minnesota non-competition and non-solicitation agreements, Minnesota confidentiality agreements, Minnesota unfair competition, Minnesota tortious interference, Minnesota temporary restraining orders (TROs), Minnesota temporary injunctions, Minnesota preliminary injunctions, Minnesota cease and desist letters, Minnesota non-compete lawsuits, and Minnesota non-compete litigation.  Minnesota non-compete lawyer Craig W. Trepanier represents clients in Minneapolis, St. Paul, Apple Valley, Blaine, Bloomington, Brainerd, Brooklyn Park, Burnsville, Coon Rapids, Duluth, Eagan, Eden Prairie, Edina, Lakeville, Mankato, Maple Grove, Minnetonka, Moorhead, Plymouth, Richfield, Rochester, St. Cloud, Stillwater, Twin Cities, Woodbury and other cities within the State of Minnesota (MN) (Minn.).