Thought Leadership

Employee Restrictive Covenants, Part 1: The Three Types of Restrictions

This is the first in a series of posts addressing some of the major legal issues facing Minnesota employers and employees in the area of employee restrictive covenants. This series will begin with the basics, by defining and describing the three major types of restrictive covenants contemplated by Minnesota law: 1) non-compete provisions; 2) non-solicitation provisions; and 3) confidentiality provisions.

  1. Non-compete provisions. An agreement not to compete is the most severe restriction which the law will allow to be placed on former employees. It prevents the former employee, within a specified geographic area and for a limited period of time, from working for any competitor of the former employer. Due to the severity of the potential harm to the former employee, the law will only enforce such a restriction to the extent that it protects a legitimate business interest of the former employer, and even then only to the extent that the time and geographic scope are “reasonable.” Broadly speaking, this sort of restriction is most often successfully imposed against: a) top executives; b) salespeople with valuable customer relationships; and c) employees with particularly valuable trade secrets, such as research scientists.
  2. Non-solicitation provisions. An agreement not to solicit is a common restriction for employees with valuable relationships with an employer’s customers, vendors, or other employees. Under such a restriction, the former employee may work for a competitor, but is prohibited, for a certain time, from soliciting (or often working with in any capacity) the former employer’s customers, vendors, and/or employees for any kind of competitive purpose. This allows the former employee to work in the industry, as long as they blaze a completely new trail, at least for a time.
  3. Confidentiality provisions. Most employees in Minnesota are subject to some kind of confidentiality provision. Such provisions prohibit the misuse of certain defined confidential information to which the employee is exposed during their employment. This can include things like customer lists, pricing information, product development information, and other types of trade secrets.  Unlike the other types of restrictions, confidentiality provisions generally do not have time limits. However, most of the information at issue generally becomes “stale” in the months after an employee’s departure, meaning that confidentiality provisions are rarely relevant far into the future.

Understanding the differences between the three types of restrictive covenants can assist employers in choosing the right type of restriction for each employee. It can also help employees understand and appreciate what they are agreeing to.

Of course, consulting with an experienced attorney before any kind of restrictive covenant is signed will ensure that the covenant chosen is both appropriate to the situation and enforceable under Minnesota law. Please feel free to contact me at 952-460-9245 or [email protected] if you would like to discuss any issues surrounding restrictive covenants. And stay tuned for further installments in this series, addressing other key legal issues surrounding restrictive covenants.

ABOUT THE AUTHOR

Brian N. Niemczyk
Phone: 952-460-9245
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