FMJ’s newest Shareholder, V. John Ella, recently wrote a very informative article for the Bench + Bar of Minnesota.
John discusses Minnesota Statutes Section 181.988, which went into effect on July 1, 2023, bans noncompete agreements entered into after that date. In doing so, however, the Legislature has also affirmed that nonsolicitation agreements are enforceable and consistent with Minnesota public policy. Minn. Stat. § 181.988, Subdivision 1, states in part: “A covenant not to compete does not include a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.”
Contracts prohibiting solicitation of customers by departing employees have been utilized for many decades in Minnesota, often in conjunction with a noncompete provision. Now that noncompetes are banned in Minnesota, nonsolicit clauses will ascend in importance to become the primary means of protecting customer goodwill. Ultimately, John posits that a nonsolicit paired with a nondisclosure should offer almost as much protection as a blanket noncompete.
The noncompete previously held allure, however, because the former employer could attempt to enjoin the former employee from working at all. If successful, the former employer would avoid the challenging task of proving actual damages in the form of lost profits. Because courts in Minnesota have become less inclined to grant injunctions over the past decade or so, practitioners have become less likely to seek injunctive relief. That means we have already started the transition away from injunction battles and toward showing actual harm from diversion of customers or other business. (To be clear, injunctive relief to enforce a nonsolicit is a viable option, but it does not keep the employee from working for a competitor.)
As John discusses in detail, Minnesota’s ban on noncompetes will not end the motivation for former employers to assert lawsuits against former employees if the former employer thinks that their customer base or business is in jeopardy. Nonsolicitation agreements will be the primary basis for these types of disputes going forward.
Please click here to read the full text of John’s article in the Bench + Bar, and reach out to John or the rest of our HR & Employment Team with questions about this or any other employment law topic.
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