Does a Non-Solicitation Agreement Need Independent Consideration?
The question is whether a non-solicitation agreement in Minnesota requires consideration similar to that required of non-compete agreements. The short answer is yes, non-solicitation agreements do require independent consideration similar to that required of non-compete agreements.
However, in some situations, independent consideration is not required for either a non-solicitation agreement or non-comepte agreement, such as when the employee is employed for many years, advances within the company, and is given increased responsibilities.
Standard Non-Solicitation Agreement
If you want to know the basis for this conclusion, here is the long answer analyzing the current state of the law in this area. A common form of a non-solicitation clause is as follows:
Non-Solicitation Agreement. As used in this Agreement, the term “Person” means any individual, corporation, joint venture, partnership, limited liability company, association or other entity. From and after the date hereof and continuing until eighteen (18) months after the voluntary or involuntary termination of Employee’s employment with the Company, with or without cause, Employee covenants and agrees that he will not, whether for his own account or for the account of any Person, directly or indirectly, interfere with the Company’s relationship with, or endeavor to divert or entice away from the Company any Person who or which at any time during the term of Employee’s employment by the Company is or was an employee, independent contractor or customer of or otherwise in the habit of dealing with the Company. Furthermore, Employee agrees from the date hereof and for a period of eighteen (18) months after the voluntary or involuntary termination of Employee’s employment with the Company, with or without cause, Employee covenants and agrees that he will not attempt to sell or market any products to any person who has been a customer of the Company at any time during Employee’s employment with the company. Provided, however, that Employee shall not be prohibited from selling or marketing products to any person if the products are not competitive with the products marketed or sold by the Company.
There are minor variations in the language of the non-solicitation provisions in the various agreements. Al’s Cabinets, Inc. v. Thurk, 2003 WL 891419 (Minn. Ct. App. 2003).
Non-Solicitations are Viewed with Disfavor by Minnesota Courts
Generally, restrictive covenants such as non-solicitation clauses are looked upon with disfavor, cautiously considered, and carefully scrutinized. Bennet v. Storz Broadcasting, Co., 270 Minn. 525, 533, 134 N.W.2d 892, 898 (1965). Such covenants are upheld nonetheless if the restriction is necessary for the protection of the business or the good will of the employer. Id.
Contracts Require Independent Consideration
Contracts generally are valid if they include consideration. Witzke v. Mesabi Rehabilitation Services, 2008 WL 314535 (Minn.Ct.App. 2008), citing Franklin v. Carpenter, 309 Minn. 419, 422, 244 N.W.2d 492, 495 (1976). Employment agreements are contracts. Kvidera v. Rotation Engineering & Manufacturing Co., 705 N.W.2d 416, 421 (Minn.Ct.App. 2005). When an employment agreement includes a restrictive covenant, such as a clause prohibiting an employee to solicit the employer’s clients or to compete with the employer’s business, and the restrictive covenant is not ancillary to an employment agreement, there must be independent consideration for the covenant. Sanborn Manufacturing Co. v. Currie, 500 N.W.2d 161, 164 (Minn.Ct.App. 1993). A restrictive covenant is not ancillary to an employment agreement when it is presented to an employee after the employee begins working. National Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982).
Sometimes Continued Employment is Sufficient Consideration
In some situations, the continuation of employment can serve as consideration. Davis & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130 (Minn. 1980). The general rules is that continuation of employment alone can be used to uphold coercive agreements, but the agreement must be bargained for and provide the employee with real advantages. However, this is only the case where the employee is employed for many years, advances within the company, and is given increased responsibilities. Satellite Industry, Inc. v. Keeling, 396 N.W.2d 635, 639 (Minn.Ct.App. 1986), review denied (Minn. Jan. 21, 1987).