Evaluating the Geographic Scope of Minnesota Non-Compete Agreements:

Under Minnesota law, the geographic scope of non-competition agreements and other restrictive covenants must be reasonable. This article provides insight into determining when the geographic limitation contained in a Minnesota non-compete agreement is reasonable in scope.

Minnesota Non-Compete Agreements Must be Reasonable Geographic Scope:

Under Minnesota law, the geographic scope of a restrictive covenant must be reasonable. See Bennett v. Storz Broadcasting Co., 134 N.W.2d 892, 899 (Minn. 1965). In order to determine whether the geographic scope is reasonable, courts generally uphold geographic limitations when they are limited to areas necessary to protect the employer's interest. Overholt Crop Ins. Serv. Co., Inc. v. Bredeson, 437 N.W.2d 698, 703 (Minn. Ct. App. 1989) (finding that in light of its purpose, the restriction was not overbroad since the scope of the covenant was limited to areas in which the employee actually worked for the employer). The court’s analysis, therefore, depends heavily on the particular facts of each case.

Minnesota Cases Where the Geographic Scope Has Been Found Reasonable:

In the following cases, Minnesota courts have found the geographic restrictions contained in the employer’s non-compete agreement to be reasonable:

10-Mile Radius: Salon 2000, Inc. v. Dauwalter, No. A06-1227, 2007 WL 1599223, at *2 (Minn. Ct. App. June 5, 2007) (holding that a non-compete agreement was valid where it restricted a hairstylist from working as a stylist within a ten-mile radius of the employer’s business).

Three States: Cook Sign Co. v. Combs, No. A07-1907, 2008 WL 3898267, at *7 (Minn. Ct. App. Aug. 26, 2008) (enforcing a non-compete agreement restricting a custom salesman from competing in three states in which the employer does business and has customers).

Eight States: Thermorama, Inc. v. Buckwold, 125 N.W.2d 844 (Minn. 1964) (enforcing a restriction against clothing salesman on selling insulated garments to company customers or established trade in eight northern states from Wisconsin to Idaho through issuance of temporary injunction).

Any of Employer’s Markets: Madsen v. Spectro Alloys Corp., No. C7-98-225, 1998 WL 373067, at *2 (Minn. Ct. App. July 7, 1998) (concluding that a restriction against an employee from competing in any market in which the employer did business in the United States was not unreasonably broad).

Minnesota Cases Where the Geographic Scope Has Been Found Unreasonable:

In the following cases, Minnesota courts have found the geographic restrictions contained in the employer’s non-compete agreement to be unreasonable:

5-Mile Radius: Tom Schmidt Associates, Inc. v. Williams, No. CX-00-1547, 2001 WL 138519, at *2 (Minn. Ct. App. Feb. 20, 2001) (stating that a restraint on a beautician working within five miles of her former employer’s business location in Minneapolis was unreasonable).

50-Mile Radius: Eutectic Welding Alloys Corporation v. West, 160 N.W.2d 566, 568 n.3, 571 (Minn. 1968) (stating that a restrictive covenant applied to a technical representative in any territory in which the representative worked in his last two years of employment and within a radius of fifty miles from any such territory or territories was unreasonable because it prohibited the representative from working in a large industrial complex outside of his territory).

200-Mile Radius of Minneapolis and 25-Mile Radius of Any Company Location: Manpower, Inc. v. Best Temporaries, Inc., 196 N.W.2d 288, 289 (Minn. 1972) (stating that a restriction against a job placement agent on working within a 200-mile radius of Minneapolis or within a 25-mile radius of any other city where the employer had an “affiliated company” was unreasonable).

Employer’s Trade Area: Klick v. Crosstown State Bank, Inc., 372 N.W.2d 85, 86 (Minn. Ct. App. 1985) (stating that a geographic restriction was unreasonable where a former bank vice president was prohibited from working for a bank within the employer's trade area as well as for any branch office for any institution that had a branch office in the trade area of the employer bank).

Minnesota Cases Analyzing Global Restrictions:

While global restrictions are often unenforceable because they are unreasonably broad, in some cases Minnesota courts have found a worldwide scope to be reasonable:

Dynamic Air, Inc. v. Bloch, 502 N.W.2d 796 (Minn. Ct. App. 1993) (stating that while the policy considerations for a per se rule prohibiting enforcement of restrictive covenants unlimited as to geography are strong, there may be instances in which an unlimited restrictive covenant is reasonably necessary to protect the employer’s interests, such as in employment with multinational corporations).

Medtronic v. Hedemark, No. A08-0987, 2009 WL 511760 (Minn. Ct. App. Mar. 3, 2009) (stating that a worldwide scope was reasonable in that it was limited to certain cardiology products, and that the confidential information employee obtained while working with former employer would be potentially relevant to his sales of products at the new employer in any market).

The Total Absence of a Geographic Restriction:

Where unlimited worldwide restrictions may be reasonable in some cases, a few Minnesota courts have held that the total absence of a geographic restriction will invalidate a non-compete agreement:

Johnson v. Menth, No. A06-1324, 2007 WL 2034365, at *5 (Minn. Ct. App. July 17, 2007) (holding that a letter of intent was not binding where, in part, it contained a non-compete agreement that did not have a geographic restriction, reasoning that the geographic scope of a non-compete agreement is a material term, and without such term, the agreement is not enforceable).

Ring Computer Systems, Inc. v. Paradata Computer Networks, Inc., C4-90-889, 1990 WL 132615 *1 (Minn. Ct. App., Sept. 18, 1990) (“Minnesota case law is clear that a covenant not to compete must have both a time and geographic restriction to be reasonable”).

Blue Pencil Doctrine:

The Minnesota Supreme Court has held that instead of invalidating the entire non-compete agreement, a court may modify unreasonable provisions of a non-compete agreement in order to make it reasonable. Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 131-32 (Minn. 1980).

Where the “blue pencil doctrine” has traditionally allowed courts to strike language from an agreement, Minnesota courts are allowed to strike, change, and insert language in order to make the agreement reasonable. See Davies, 298 N.W.2d at 131 n.1.

While courts are allowed to modify the agreement, courts are not required to modify an overly broad non-compete agreement. See Klick v. Crosstown State Bank, Inc., 372 N.W.2d 85, 88-89 (Minn. Ct. App. 1985). A court may decide to strike down an unreasonable agreement altogether. Therefore, a Minnesota employer should not draft the broadest possible non-compete agreement with the expectation that the court will simply narrow the language to make it reasonable.

In the following cases, Minnesota courts have applied the “blue pencil doctrine” to narrow the geographic scope of the non-compete agreement in question:

Vital Images, Inc. v. Martel, Civ. No. 07-4195, 2007 WL 3095378, at *4 (D. Minn. Oct. 19, 2007) (stating that where there was no limitation as to geographic territory, the court was not convinced that the scope of the non-compete agreement was reasonable absent a geographical limitation, but that it was reasonable at the temporary restraining order stage of the case to modify the scope of the non-compete provision so that it is limited geographically to those states in which the former employee operated while working for the employer).

Tom Schmidt Associates, Inc. v. Williams, No. CX-00-1547, 2001 WL 138519, at *2-3 (Minn. Ct. App. Feb. 20, 2001) (stating that where a geographic limitation that fails to specify whether the five-mile measurement is determined by direct-line measurement or if it is measured by actual routes of travel, the court was within its discretion in finding that it would likely be appropriate to limit the restriction with the blue-pencil doctrine).

How Do Minnesota Courts Measure a Geographic Restriction:

In Tom Schmidt Associates, Inc. v. Williams, No. CX-00-1547, 2001 WL 138519, at *2-3 (Minn. Ct. App. Feb. 20, 2001), the non-compete agreement in question does not specify whether the restriction should be measured by driving distance or ‘as the crow flies’. In the case, the former employee signed an employment contract that contained several restrictive covenants, including a non-compete clause that forbade her from competing with the former employer by working in or owning another spa or hairstyling business within a five-mile radius for a one-year period following termination of her employment. The parties submitted conflicting evidence regarding the distance between the former employer’s salon and the former employee’s new salon. The former employer submitted evidence that the driving distance was 4.8 miles and also within a five-mile radius using a straight-line measurement. The Minnesota Court of Appeals stated that the trial court was well within its discretion in finding that it would likely be appropriate to limit the restriction with the blue-pencil doctrine. The court affirmed the trial court’s decision denying the former employer’s request for a temporary injunction.

In Tom Schmidt, the trial court provided that “even if it can be shown that the former employee’s business is within five miles ‘as the crow flies’ it is not clear that this is a reasonable way to measure distance in the context of this case… the ease with which one can travel that distance must also be considered.” The trial court observed that even if the agreement were to be read more restrictively, the geographic scope was not limited to those areas necessary to protect the former employer’s interests. Ultimately, it appears the absence of a method to measure the geographic restriction may provide the court with more latitude in determining whether a geographic restriction is reasonable. In this regard, it may be more likely that a court finds it appropriate to blue-pencil the non-compete agreement.

Customer-Based Restrictions:

In situations involving a narrowly-tailored covenant prohibiting the employee from soliciting former customers (rather than a broad non-competition covenant barring the employee from working for any competitors or otherwise competing against the employer), Minnesota courts have allowed a customer restriction to substitute or complement a geographic restriction:

Hart Forms & Sys. v. Goettsch, 1990 WL 195473, at *3 (Minn. Ct. App. 1990) (noting that, although courts must consider geographic scope of covenants not to compete, a covenant which focused on a select group of customers, accounts, and lead sources and was needed to protect employer’s business interests needed no geographic limitation, because an injunction enforcing covenant was client-specific, covering for one year approximately 12 customers and 3 leads).

Overholt Crop Ins. Serv. Co., Inc. v. Bredeson, 437 N.W.2d 698, 703 (Minn. Ct. App. 1989) (stating that a restraint on contact with existing customers in counties where employee worked was reasonable).

Risk Protectors, Inc. v. Callahan, No. CX-88-2422, 1989 WL 20448, at *1-2 (Minn. Ct. App. Mar. 14, 1989) (stating that a restrictive covenant against contact with any customer or active prospect handled by employee during employment was reasonable).

Benfield, Inc. v. Moline, 351 F. Supp. 2d 911, 918 (D. Minn. 2004) (stating that a restrictive covenant that was limited to twelve former clients was reasonable).

Conclusion:

Under Minnesota law, the geographic scope of a non-compete agreement or other restrictive covenant must be reasonable. To some extent, the courts in Minnesota appear to be relaxing the requirement of a reasonable geographic scope for non-compete agreements in light of modern advances in technology, transportation, and communications systems that make it easier for employees to compete from almost anywhere. While the courts have started to recognize the enforceability of broad geographic restrictions in certain non-compete agreements, Minnesota employers should still narrowly tailor their agreements to enhance their enforceability under Minnesota law.

About Craig W. Trepanier

Craig W. Trepanier is the President and co-founder of Trepanier MacGillis Battina P.A., a Minneapolis law firm. Mr. Trepanier regularly represents Minnesota businesses and employees in their employment law matters, including disputes over non-compete agreements and misappropriation of trade secrets. He also frequently litigates non-compete disputes in state and federal court.

Craig W. Trepanier, Attorney
Trepanier MacGillis Battina P.A.
8000 Flour Exchange Building
310 Fourth Avenue South
Minneapolis, MN 55415
Phone: 612.455.0502
Fax: 612.455.0501
craig@trepanierlaw.com
www.trepanierlaw.com

Focusing on Minnesota Employment Law, Minnesota Employment Litigation, Minnesota Non-Compete Law, Minnesota Non-Compete Litigation, and Minnesota Unfair Competition Law.