In an August 14, 2013 article in The Wall Street Journal, authors Ruth Simon and Angus Loten suggest that non-compete clauses, and the litigation over such clauses, hinder entrepreneurship in the U.S. The article cites a study conducted by the law firm, Beck Reed Riden LLP, which found that court decisions over non-compete agreements rose 61% since 2002. Just last year there were a total of 760 U.S. court decisions involving non-compete agreements. Because “most cases are settled out of court and most opinions aren’t reported,” the authors of the article posit that this number is likely lower than the actual number of cases involving non-compete agreements.

According to the article, in response to the effect non-compete litigation may be having on the economy and employment, states have made efforts to limit the use of non-compete agreements. For instance, legislators in New Jersey and Massachusetts are now considering legislation that would limit the scope and enforceability of non-compete agreements. While Minnesota was one of the states considering such legislation, the bill, H.F. No. 506, stalled during the 2013 legislative session and will not advance this year.

The authors rely predominately on anecdotal evidence to support their argument that non-compete agreements, and the litigation that follows, deter entrepreneurship and make the recruiting process for startup businesses more difficult. The same professionals who express frustration with non-compete agreements, however, are often the ones requiring their own employees to sign non-compete clauses.

The Takeaway for Employers
It is unlikely that employers – even those complaining about non-competes – will stop requiring their own employees to sign non-compete and non-solicitation agreements. It is likewise uncertain whether the Minnesota legislature will curtail the use of such agreements in the State of Minnesota. Because non-compete agreements are partial restraints of trade and narrowly construed, however, it is important for employers to draft reasonable and narrowly tailored non-compete agreements that protect legitimate business interests such as confidential information, trade secrets, and customer goodwill. Likewise, prior to signing a non-compete agreement, employees should fully understand the legal implications of the agreement, seek legal advice, and attempt to negotiate changes to the agreement if it is unreasonably broad, lasts too long, or is not backed up by sufficient compensation.

For assistance reviewing or drafting a non-compete agreement, please contact the experienced employment law attorneys at Trepanier MacGillis Battina P.A.
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About the Author:
Trepanier MacGillis Battina P.A. attorney Craig W. Trepanier regularly represents Minnesota businesses and employees in their employment law matters, including disputes over non-compete agreements and misappropriation of trade secrets. Craig may be reached at 612.455.0502 or craig@trepanierlaw.com.