Employee Non-Compete Agreement and Enforceability Memo — Minnesota

MINNESOTA EMPLOYEE NON-COMPETE AGREEMENT AND ENFORCEABILITY MEMO

Part 1 — Enforceability memo

To: [CLIENT / DECISION MAKER]
From: [PREPARER]
Date: [__/__/____]
Proposed seller: [NAME]
Proposed buyer: [NAME]

Transaction and proposed restraint

Business or ownership interest being sold: [DESCRIBE THE BUSINESS, ASSETS OR OWNERSHIP INTEREST, AND THE SELLER'S ROLE]

Sale agreement and closing date: [IDENTIFY AGREEMENT AND DATE]

Business activity to be restricted: [DESCRIBE THE SOLD BUSINESS ACTIVITY]

Proposed geographic area: [DEFINE AREA AND FACTUAL BASIS FOR ITS REASONABLENESS]

Proposed duration: [____] months after closing. Basis for reasonableness: [FACTS]

Statutory assessment

Minn. Stat. § 181.988, subdivision 2(a), makes an employment covenant not to compete void and unenforceable. The section covers employees and independent contractors. It applies to agreements entered into on or after July 1, 2023. A prior agreement and any later change to it require review of the actual dates and terms.

Subdivision 2(b)(1) permits a temporary, geographically restricted covenant agreed upon during the sale of a business between the seller (including selling partners, members, or shareholders) and buyer. The restriction must concern a similar business and use a reasonable geographic area and length of time. Subdivision 2(b)(2) separately addresses covenants agreed upon in anticipation of dissolution; this form does not use that route.

Is this an actual qualifying business sale involving the person signing as seller? ☐ Yes ☐ No
Facts and documents supporting the answer: [________________________________]

Does the proposed clause restrict only a similar business, for a reasonable time and area? ☐ Yes ☐ No
Facts supporting the answer: [________________________________]

Conclusion for this transaction: [STATE WHETHER THE SALE EXCEPTION IS SUPPORTED, WHAT TERMS NEED REVISION, OR WHY THE CLAUSE SHOULD BE OMITTED]

Nondisclosure, trade-secret protection, customer nonsolicitation, and client/contact-list restrictions are excluded from the statutory definition of a covenant not to compete. That exclusion does not decide whether any particular clause is enforceable under other law. An employee enforcing rights under § 181.988 may receive reasonable attorney fees if a court awards them; the statute does not make fees automatic.

Subdivision 3 gives an employee who primarily resides and works in Minnesota a right to void a required out-of-state adjudication or loss of Minnesota-law protection for a claim under § 181.988. Review any separate employment agreement for such a clause.

Prepared by: _______________________________ Date: [__/__/____]

Part 2 — Business-sale non-compete agreement

This Agreement is made on [__/__/____] by [SELLER LEGAL NAME] (Seller) and [BUYER LEGAL NAME] (Buyer) in connection with their sale agreement dated [__/__/____] (Sale Agreement).

1. Sale and scope

Seller is selling [DESCRIBE BUSINESS OR SELLER'S INTEREST] to Buyer under the Sale Agreement, with closing on [__/__/____]. The business sold conducts [DESCRIBE SPECIFIC BUSINESS ACTIVITY] in [DESCRIBE AREA IN WHICH IT OPERATES]. The parties enter this covenant during that sale under Minn. Stat. § 181.988, subdivision 2(b)(1).

2. Temporary restriction

For [____] months after the closing date, Seller shall not carry on a business substantially similar to the business described in Section 1 within [PRECISE GEOGRAPHIC AREA]. The parties select this time and area based on [TRANSACTION-SPECIFIC FACTS SHOWING REASONABLENESS]. This clause does not restrict activity outside that time, area, or similar-business scope.

3. Relationship to sale agreement

The parties agree that this covenant is part of the business sale described above. It is not a condition imposed solely for Seller's employment or independent-contractor services. If the sale does not close, this covenant does not take effect.

4. Governing law and changes

Minnesota law governs this Agreement. Changes must be in a writing signed by Seller and Buyer. Each party receives a signed copy.

SELLER: _______________________________ Date: [__/__/____]
Printed name and capacity: [________________________________]

BUYER: _______________________________ Date: [__/__/____]
Printed name and capacity: [________________________________]

Sources

• Minn. Stat. § 181.988
• 2023 Minn. Laws ch. 53, art. 6, § 1 (effective date)