Non-compete Agreement in the Sale of a Business

105927366-contract-willIn 1991 the Minnesota Supreme Court upheld the covenant not to compete in connection with a sale of a business. The covenant not to compete was upheld because it was narrow, limited in time and geographic scope, and permitted the parties to the transaction to be able to compete with each other outside of the geographical limitation. This law is still good today and business purchasers should obtain a covenant not to compete from the seller of a company.

In more recent Minnesota cases, covenants not to compete executed during the sale of a business are enforceable if they “protect purchasers of an ongoing concern from an infringement upon their investment and the continuation of the business for a profit.” Haynes v. Monson, 301 Minn. 327, 330, 224 N.W.2d 482, 483 (Minn. 1974). “Many of the grounds for imposing a stricter test of reasonableness in the context of an employment relationship are not present” in the context of a non-compete agreement in the sale of a business. B & Y Metal Painting, Inc. v. Ball, 279 N.W.2d 813, 815 (Minn. 1975). However, even though covenants not to compete in a business sale context are not as strictly construed as they are in an employer-employee context, they still are carefully examined by courts. In Lemon v. Gressman, C7-98-2119, 1999 WL 451165 (Minn. App. July 6th, 1999), the Minnesota Court of Appeals held that the word “operating” in a non-compete agreement of the sale of a restaurant did not mean that the seller of the restaurant could not “own” another restaurant within the restricted geographical area. Therefore, it is important for covenants not to compete in connection with the sale of a business are specific, clear, and reasonable.

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