How Long May a Non-Compete Agreement Last under Minnesota Law?

In order for a non-compete agreement to be enforced under Minnesota law, the non-compete agreement must be reasonable in temporal scope (duration). This article provides insight into when the temporal scope of a non-compete agreement is reasonable under Minnesota law.

Evaluating “Reasonable Duration” of Non-Compete Agreements in the “Employer-Employee” Context:

Under Minnesota law, a restrictive covenant will only be enforced for the length of time that is “necessary for the protection of the business or good will of the employer.” Bennett v. Storz Broadcasting Co., 134 N.W.2d 892, 899 (Minn. 1965). In order to determine whether the temporal scope is reasonable, the court will consider the nature of the job, the amount of time necessary to find and train a replacement for the employee, and the amount of time necessary for the employee’s customers to be accustomed to the employee’s replacement. See Klick v. Crosstown State Bank, Inc., 372 N.W.2d 85, 88 (Minn. Ct. App. 1985).

These three factors appear to be separate tests rather than a single test. Dean Van Horn Consulting Assocs. v. Wold, 395 N.W.2d 405, 408-09 (Minn. Ct. App. 1986) (“The reasonableness of the duration of a restrictive covenant may be tested under two alternative standards: (1) the length of time necessary to obliterate the identification between employer and employee in the minds of the employer’s customers; and (2) the length of time necessary for an employee’s replacement to obtain licenses and learn the fundamentals of the business”). A particular time period is reasonable to the extent that it is necessary to “obliterate the identification between employer and employee in the minds of the employer's customers” or “the length of time necessary for an employee's replacement to obtain licenses and learn the fundamentals of the business.” Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 131 (Minn. 1980).

Enforceability of One-Year Non-Compete Agreements:

Because Minnesota courts look at a variety of factors to determine whether a non-compete agreement is reasonable in duration, the outcome of each case will turn heavily on the facts of the individual case.

As a general rule, Minnesota courts tend to find that non-compete agreements lasting one year or less are reasonable in temporal scope. See, e.g. Thermorama, Inc. v. Buckwold, 125 N.W.2d 844 (Minn. 1964) (holding that a former employer was entitled to temporary injunction against solicitation of its customers by former employee who had agreed to refrain from competition for one year after termination of employment and who allegedly systematically solicited former employer's customers and actively participated in competitive business enterprise); Medtronic, Inc. v. Gibbons, 572 F. Supp. 1085, 1094 (D. Minn. 1981), aff’d, 684 F.2d 565, 567, 569 (8th Cir. 1982) (affirming the district court’s holding that a restrictive covenant which prohibited a sales representative for a medical device company from contacting or communicating with recent customers or the former employer for 360 days following his termination of employment showed a likelihood of success on the merits); Benfield, Inc. v. Moline, 351 F. Supp. 2d 911, 918 (D. Minn. 2004) (holding that a one year duration of restrictive covenants was reasonable under Minnesota law, for purpose of employer's motion for preliminary injunction, where former employees worked for employer for over 10 years, they developed close relationships with, and knowledge of, reinsurance clients through their work for employer, one year restriction was reasonably necessary to ensure that employer had opportunity to work with each client through its renewal period, renewal periods for several former clients had not yet occurred, restriction only limited former employees with respect to 12 former clients out of pool of over 1,000 other potential insurance clients, and employees were gainfully employed); Guidant Sales Corp. v. Baer, No. 09-CV-0358 (PJS/FLN), 2009 WL 490052, at *4 (D. Minn. Feb. 26, 2009) (holding that a sales representative for a medical device company who signed a non-compete agreement that prohibited him from selling or supporting the sale of competing products to any of the former employer’s accounts for a period of one year after termination was reasonable because it was narrowly drawn and that courts have consistently found one-year restrictions that are limited to a former employee’s sales area to be reasonable).

Enforceability of Two-Year Non-Compete Agreements:

The Minnesota court decisions involving non-compete agreements lasting two years are mixed.

In several cases, Minnesota courts have enforced two-year non-compete agreements. See, e.g., Overholt Crop Ins. Serv. Co., Inc. v. Bredeson, 437 N.W.2d 698, 704 (Minn. Ct. App. 1989) (upholding a two-year restrictive covenant prohibiting employee from soliciting any business from customers he personally serviced while employed with the former employer as reasonable when, after five years of employment, insurance sales representative had established a good relationship with customers, had been trained on service technique, and was in close contact with customers); BFI-Portable Services, Inc. v. Kemple, No. C5-89-1172, 1989 WL 138978, at *2-3 (Minn. Ct. App. Nov. 21, 1989) (holding that a restrictive covenant which prohibited an employee for a portable toilet service company from soliciting its customers on behalf of competing businesses for a period of two years after termination of employment was enforceable because it reasonably protected the employer’s interests and it was not overbroad); R.L. Youngdahl & Associates, Inc. v. Peterson, No. CO-87-2418, 1988 WL 35436, at *1 (Minn. Ct. App. 1988) (upholding a non-compete agreement, which provided that the employee would not solicit or accept any business from employer’s customers for two years following termination of employment).

In other cases, Minnesota courts have refused to enforce two-year non-compete agreements. See, e.g., Medtronic, Inc. v. Sun, No. C7-97-1185, 1997 WL 729168, at *5 (Minn. Ct. App. Nov. 25, 1997) (upholding a reduction of restriction from two years to one year because two years was unreasonable for a research scientist employed only three years and unreasonable for an engineer with less exposure to confidential information than the research scientist); Ecolab, Inc. v. Ford, No. C0-94-1207, 1994 WL 510121, at *2 (Minn. Ct. App. Sept. 20, 1994) (enforcing a one-year non-compete agreement for a senior sales manager instead of a two year non-compete based on findings that (1) employee’s break with the company was well publicized and known to customers; (2) employee’s replacement was not new; (3) employee had had a one year non-compete for 23 years which had only recently been increased to two years, and that employer’s motivation was not to protect legitimate interest but to protect its investment in the employee by forcing him to remain with the company).

Enforceability of Three-Year Non-Compete Agreements:

Minnesota courts often refuse to enforce three-year non-compete agreements between employers and employees, reasoning that such restrictions are unreasonable. See, e.g., Klick v. Crosstown State Bank, 372 N.W.2d 85, 88 (Minn. Ct. App. 1985) (holding that a provision of noncompetition clause prohibiting bank vice-president from working for a financial institution within defined area for period of three years following termination of employment was unreasonable in regard to its temporal restriction, where evidence showed that vice-president did not develop any special relationships with bank customers, and thus three-year limit could not be justified as a legitimate period for obliterating identification between bank and vice-president in mind of bank's customers); Dean Van Horn Consulting Associates, Inc. v. Wold, 395 N.W.2d 405, 409 (Minn. Ct. App. 1986) (holding that a restrictive covenant precluding a tax consultant from soliciting or lending similar services to any customer employee advised during his employment with employer for three years was overly broad given the fact that employer alerted clients of obliteration of relationship between employer and employee and had employer chosen to hire replacement for employee, one year would have been reasonable time for restrictive covenant); Head v. Morris Veterinary Center, Inc., No. A04-2334, 2005 WL 1620328, at *3-4 (Minn. Ct. App. July 12, 2005) (affirming a district court’s temporal modification of a non-compete clause prohibiting a veterinarian from competing with the former employer for a 25 mile radius of the City of Morris for three (3) years from the date of such termination, from three years to one year, because since there was evidence in the record to suggest that six months is an adequate time period to train a new veterinarian at the former employer, the court of appeals did not disturb the district court's finding that new employees are “fully incorporated into the business routine within six months”).

Evaluating “Reasonable Duration” of Non-Compete Agreements in the “Sale of Business” Context:

Where a non-compete agreement is given in connection with the sale of a business, Minnesota courts are willing to enforce longer agreements than typical in the employer-employee context. See B & Y Metal Painting, Inc. v. Ball, 279 N.W.2d 813, 815 (Minn. 1979) (holding that where a covenant not to compete arose out of both the sale of an individual's metal-painting business and his employment contract with purchaser of business, that seller's attorney drafted both the covenant not to compete and the employment agreement, and seller had signed covenant not to compete as part of sale, the covenant not to compete with buyer for a period of three years from termination of seller's employment with buyer was reasonable and seller's opening of new competing business year following termination of his employment was direct violation of contract); Kunin v. Kunin, No. C0-99-206, 1999 WL 486814, at *3 (Minn. Ct. App. July 13, 1999) (holding that an eleven-year restriction on the president of a business which was sold was reasonable where the individual had the choice of collecting monthly payments and not competing, or foregoing the payments and competing); Lemon v. Gressman, No. C8-00-1739, 2001 WL 290512, at *1-3 (Minn. Ct. App. Mar. 27, 2001) (enforcing a non-compete clause prohibiting the sellers of a restaurant from participating as an owner or operator in any food service business for a period of five years within a one-mile radius of the current location of that business).

Even in the sale of business context, however, Minnesota courts will carefully scrutinize the duration of the non-compete agreement and may shorten its duration. See, e.g., Young v. Meyer, No. C6-88-1543, 1989 WL 29594, at *2 (Minn. Ct. App. Apr. 4, 1989) (affirming the trial court’s reduction of a non-compete agreement prohibiting the seller of interest in a partnership from working for any competitor within a fifty-mile radius of St. Cloud for a period of time extending until the contract was paid in full or three years from the date of termination of employment with Granite City from a three year restraint to eighteen months); Ikon Office Solutions, Inc. v. Dale, Nos. 01-2055, 01-2667, 2001 WL 1269994, at *1 (8th Cir. Oct. 24, 2001) (holding that the modification of a non-compete term for the sale of computer equipment sales and service business, which reduced the non-compete term from five to three years under Minnesota's “blue pencil doctrine,” was not abuse of discretion where district court found five-year restriction unreasonable because it exceeded protection necessary to secure any goodwill purchased, placed undue hardship on buyer and his company, and had deleterious effect on interests of general public).

Modifying the Duration of Non-Compete Agreements Under the “Blue Pencil Doctrine”:

The Minnesota Supreme Court has held that Instead of invalidating the entire non-compete agreement, a court may modify unreasonable provisions of a non-compete agreement in order to make them reasonable. Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 131-32 (Minn. 1980). Where the “blue pencil doctrine” has traditionally allowed courts to strike language from an agreement, Minnesota courts are allowed to strike, change, and insert language in order to make the agreement reasonable. See Davies, 298 N.W.2d at 131 n.1. While courts are allowed to modify the agreement, courts are not required to modify an overly broad non-compete agreement. See Klick v. Crosstown State Bank, Inc., 372 N.W.2d 85, 88-89 (Minn. Ct. App. 1985) (holding that the trial court did not abuse its discretion in failing to “blue pencil” restrictive covenant where employee worked for employer only for a short period of time and gained little, if any, information which would be damaging to employer).

In the following cases, Minnesota courts have applied the “blue pencil doctrine” to narrow the temporal scope (duration) of the non-compete agreement in question:

Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127 (Minn. 1980) (modifying covenant purporting to bar former employee from engaging in the insurance business for five years within 50-mile radius of three cities to prohibit the employee from engaging in the sale of bonds within a one-county area for one year from the date of the employee’s last active employment).

Dean Van Horn Consulting Assocs. v. Wold, 395 N.W.2d 405, 408-09 (Minn. Ct. App. 1986) (holding that a restrictive covenant precluding a tax consultant from soliciting or lending similar services to any customer employee advised during his employment with employer for three years was overly broad given the fact that employer alerted clients of obliteration of relationship between employer and employee and had employer chosen to hire replacement for employee, one year would have been reasonable time for restrictive covenant).

IKON Office Solutions, Inc. v. Dale, 22 Fed. Appdx. 647, 2001 WL 1269994 *1 (8th Cir. Oct. 21, 2001) (applying Minnesota law, affirming the trial court’s reduction of a five year restraint on buyers of part of a business from competing against seller’s remaining business to three years).

Guidelines for Drafting Minnesota Non-Compete Agreements With a Reasonable Duration:

While the enforceability of the duration of any particular non-compete agreement is fact-based, there are five general rules that Minnesota employers should follow when determining the length of non-competition restrictions to include in their restrictive covenant agreements:

To be enforceable, the employer must generally include a temporal restriction (explicit duration) for any non-competition and non-solicitation covenants contained in the non-compete agreement. (In contrast, covenants protecting confidential and proprietary information and trade secrets can last indefinitely, so long as the information remains confidential.
The employer is generally allowed to include a temporal restriction (duration) up to one year in length and the Minnesota courts will find it reasonable under most circumstances.
If the employer wishes to implement a temporal restriction (duration) that is longer than one year (e.g., 18 months or two years), it should recognize that the Minnesota courts will conduct a fact-intensive inquiry and may not enforce the agreement as written. It would be wise for the employer, when drafting the agreement, to gather evidence and prepare a “business justification” for the longer duration.
A Minnesota employer typically cannot include a temporal restriction (duration) that extends beyond two years in a non-compete agreement entered into with an employee. Absent compelling and unique circumstances, the Minnesota courts will likely declare such restrictions unenforceable, or shorten them under the “blue pencil doctrine.”
In the “sale of business context,” a Minnesota company may typically include a temporal restriction that is beyond two years. Five-year non-competition agreements are not uncommon in the “sale of business” context, and even longer restrictions might be enforceable depending upon the sophistication of the parties, purchase price, specific industry, customer base, and terms of the sale.

If Minnesota employers follow these general rules, there is a greater likelihood that the courts will find the duration of their non-compete agreements reasonable under Minnesota law.

Focusing on Minnesota Employment Law, Minnesota Employment Litigation, Minnesota Non-Compete Law, Minnesota Non-Compete Litigation, and Minnesota Unfair Competition Law