Non-Competes and Valid Consideration

by | Jun 25, 2024 | Non- Compete Agreements

  1. What is a Non- Compete Agreement?

Non compete agreements were essentially and for the most part banned in Minnesota as of July of 2023, however, agreements signed before that may still be honored, depending upon the time and geographical limitations in those agreements accommodating the basic career and financial needs of the employee. Non-compete agreements are contracts that restrict employees from engaging in competitive activities after leaving their current employer. While such agreements may seem reasonable, their enforceability can hinge on various factors, including the adequacy of ‘consideration’ provided to the employee.

2. What is a Valid Consideration

Consideration is defined as anything the employee gains in exchange for having signed the agreement- even the position itself if the offer coincided with the signing of the agreement. In Minnesota, as in many jurisdictions, consideration is a critical element in determining the validity of a non-compete agreement. Consideration refers to something of value exchanged between parties to a contract. For a non-compete agreement to be enforceable, the consideration provided to the employee must be sufficient. In the context of employment, this often involves the offer of employment itself or some other tangible benefit provided at the commencement of employment. Courts in Minnesota typically view a new job offer as adequate consideration for a non-compete agreement if the agreement is presented to the employee at the outset of employment. However, if the employee is only made aware of the non-compete after accepting the job offer or, especially, after beginning employment, courts may deem the consideration insufficient to allow the agreement to be enforced.

3. What is Independent Consideration?

If a non-compete agreement was presented to an employee after they had already begun working, it may still be enforceable if supported by new and independent consideration. Independent consideration refers to tangible benefits negotiated between the employer and employee that are separate from the initial terms of employment. In Minnesota, continued employment alone is generally not considered sufficient independent consideration for a non-compete agreement. Examples of independent consideration may include midstream or post-termination benefit agreements, promotions, additional compensation, or other valuable benefits negotiated between the parties.

4. Statute of Frauds and Written Consideration:

Under the ‘statute of frauds’, certain contracts, including non-compete agreements, must be in writing to be enforceable. Additionally, consideration must be explicitly stated in writing to satisfy the requirements of the statute.Therefore, in Minnesota, any consideration provided in exchange for a non-compete agreement should be clearly outlined in writing to ensure its enforceability under the statute of frauds.