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Should Minnesota limit the reach or scope of noncompete contracts?

In the past few years, the Great Recession has kept many employees locked into their current jobs out of concern about the tough job market. As the unemployment rate gradually improves and there are fewer applicants for each new job opening, however, people are beginning to look around for more interesting prospects.

For some workers — especially those in Minnesota’s high tech and medical supply industries — the decision to make a job change or start a new business includes the consideration of whether the employee’s rights are restricted by a noncompete agreement and, if so, whether that employment contract is enforceable.

This legislative session, two members of the Minnesota House introduced a bill that would essentially prohibit any new noncompete contracts except between people whose direct competition could affect the value of businesses after a closure or sale.

The most common type of noncompete contract is imposed upon the employee by the employer upon hiring. These are typically meant to prohibit the employee from leaving the company only to found or join a competing company, now armed with insider information about client lists, proprietary processes, trade secrets and other things a competitor might derive an unfair benefit from knowing.

For the majority of workers, noncompete contracts seem a perfunctory and absurd restriction on the employee’s right to work for a so-called competitor. Most employees don’t have access to much truly secret information, and prospective employers have no intention of pumping their new hires for whatever they do know.

Nevertheless, some companies strictly enforce noncompete contracts, which hurts workers’ chances at getting better jobs within the industries they know.

Minnesota’s courts generally uphold noncompete agreements they determine are “reasonable,” meaning that they serve a legitimate business need and don’t restrict the employee too much in terms of the time period of the restrictions, broad geographical limitations or an overreaching definition of the competing industry in which the employee is restricted from working.

Other states such as Wisconsin and California, however, have been increasingly strict in their interpretation and enforcement of the contracts.

The House proposal is stalled in committee and probably wouldn’t be adopted until at least next year, even if no changes are made. Nevertheless, it may be a sign that the legislature is interested in loosening the limitations on worker mobility.

Source: Minneapolis StarTribune, “Business forum: The time has come to eliminate noncompete contracts in Minnesota,” Marshall H. Tanick, April 21, 2013

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