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The Statute of Frauds and Non-compete or Non-solicitation Agreements in the State of Minnesota

Frequently we help our clients with questions that arise out of non-compete or non-solicitation agreements. Generally those agreements seek to prohibit the employee from competing against the employer (a non-compete) or from encouraging the employer’s customers or other employees to leave the employer (non-solicitation). Those prohibitions usually last for a period of time after the employee stops working for the employer.

While Minnesota law does not favor such agreements, courts will enforce them if certain requirements are met. One of those requirements is that the employee must receive a benefit (consideration) in exchange for their willingness to sign the agreement. A 2015 decision from the Minnesota Court of Appeals may have made it more difficult for employers to demonstrate that necessary consideration.

In JAB, Inc. V. Naegle, 867 N.W.2d 254 the Court dealt with a written non-solicitation agreement that provided that it was to last two years after the end of Naegle’s employment with JAB. The “boiler plate” of the agreement also included an integration clause saying that the agreement contained the entire understanding between the parties. Finally, the agreement did not include any language spelling out the consideration that Naegle was to receive in exchange for signing the agreement.

In the JAB decision, the Court relied on Minnesota’s statute of frauds to find that the agreement was not enforceable against Naegle. Minnesota’s statute of frauds (Minn.Stat. § 513.01) requires that an agreement that cannot be performed within one year from its making must be in writing or it cannot be enforced. Given its two year term, JAB’s non-solicitation agreement could not be performed within one year and thus the Court found that the statute of frauds applied. The Court then concluded that since the agreement did not spell out any consideration and included the integration clause stating that the agreement contained the entire understanding of the parties, JAB could not establish that there was adequate consideration to support the agreement and therefore it was not enforceable.

The takeaway for our clients from the JAB decision depends on which side of the agreement they find themselves. Employers need to re-examine their agreement to make sure that adequate consideration is specifically described in the written agreement. Employees who have signed off on such agreement or new employers who may wish to hire someone who has signed such an agreement may have a new argument that such an agreement is not enforceable.

This type of case is always dependent on its specific facts. If you have questions about non-competes or non-solicitation agreements please contact the attorneys at Sanford, Pierson, Thone & Strean, PLC.

Author; Wayzata Attorney, Jeffrey Thone

About the Author

Wayzata Attorney, Jeffrey Thone

Wayzata Attorney, Jeffrey Thone

Jeff Thone was raised in the Twin Cities and Rochester, Minnesota. He was a political science major and a 1983 graduate of the University of Minnesota. Jeff also attended the University of Minnesota's law school where he was a cum laude graduate in 1986.

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