Non-compete agreements can be important tools for employers. Below is a list of quick tips to think about when drafting and executing non-compete agreements with employees.
- Make sure that the employee signs the non-compete agreement at the outset of employment. Like with any contract, a non-compete has to be supported by consideration. The consideration at the outset of employment would be the employer offering employment and the employee in exchange signing the non-compete agreement. If the non-compete agreement is not signed at the outset of employment, then the consideration no longer exists. If an employer finds themselves in this situation, the employer should request that the employee sign the non-compete agreement but then offer another source of consideration, such as a cash bonus or benefits that were not a part of the original compensation package for the employee.
- The non-compete agreement should be understandable. Make sure to use language that would be understood by any employee in your company given their background and education. Keeping it short and simple will help if the non-compete agreement is ever challenged in the future. Another suggestion to help make sure that the non-compete agreement is understood by the employee is to provide a cover letter that explains the agreement and what the employer is asking the employee to sign.
- Less is more. Make sure that an employer has a reasonable non-compete or non-solicitation agreement. Reasonable would mean that even though the employer thinks that it wants a lengthy term or a large geographical restraint, a court will most likely not enforce that type of agreement. A good way to determine the proper length or geographical scope is to think about how long it would take the employer to replace that employee and train that employee in on the employer’s business. A good rule of thumb is a duration around 1 year based on previous Minnesota court decisions.
- It’s important that the employee knows that any restriction in a non-compete survives the termination of the employment relationship. If this is not spelled out in the non-compete agreement, it could invalidate any restrictive covenant upon the expiration of the employee’s relationship with the employer.
- If within your non-compete agreement you are also asking the employee to agree to a confidentiality agreement, make sure that the information that you want to be confidential actually remains confidential. An employer wants to be able to show a court that it took reasonable steps to protect the information that it wanted to be kept confidential. For example, password protecting documents, marking paper documents as confidential and only allowing certain employees to view certain documents and information.
- Include in your non-compete agreement that Minnesota law applies to the contract and any disputes that arise under the contract. Including this in your non-compete is key because Minnesota courts most likely will defer to the agreement of the parties on the choice of law.
- Include a provision that requires the employee to reimburse an employer’s attorney’s fees and costs if the employer is forced to enforce the agreement. If this is not included in the non-compete and a dispute arises under the contract, the employer will most likely have to bear it owns costs to enforce the agreement.
- Lastly, it’s important that if an employee leaves employment and is under a non-compete, non-solicitation, or confidentiality agreement that the employer reiterates that those agreements are in effect when the employee terminates. A simple cover letter or email reiterating what their obligations are after they leave the employer is important.