How to Draft Enforceable Restrictive Covenants

Why Restrictive Covenants Matter for Your Business

Restrictive covenants serve as contractual safeguards that limit what former employees can do after leaving your company. When properly drafted, they protect trade secrets, preserve client relationships, and prevent unfair competition. When drafted poorly, they provide nothing more than a false sense of security.

The stakes are significant. A departing executive who joins a competitor and solicits your top clients can cause millions of dollars in losses. A former engineer who carries proprietary designs to a rival can undermine years of research and development. Restrictive covenants, when enforceable, give your business legal recourse in these situations.

The Three Core Types of Restrictive Covenants

Non-Compete Agreements

A non-compete agreement restricts a former employee from working for a competitor or starting a competing business for a specified period within a defined geographic area. Courts have always scrutinized non-competes more heavily than other restrictive covenants because, as partial restraints of trade, they directly limit a person’s right to work and earn a living. Minnesota courts have long described such contracts as “looked upon with disfavor, cautiously considered, and carefully scrutinized” (Bennett v. Storz Broadcasting Co., 270 Minn. 525, 134 N.W.2d 892 (1965)).

In Minnesota, that disfavor has now hardened into an outright ban. Under Minn. Stat. § 181.988, “[a]ny covenant not to compete contained in a contract or agreement is void and unenforceable” if it was entered into on or after July 1, 2023. The ban is not retroactive: a non-compete signed before that date remains enforceable if it is reasonable. Two narrow exceptions survive: a covenant agreed to by the seller in the sale of a business, and one agreed to in anticipation of a business’s dissolution, each of which must cover only a reasonable geographic area and a reasonable length of time. The statute also does not reach nondisclosure, trade-secret, or non-solicitation agreements, which remain enforceable.

For a Minnesota employer hiring today, this means a new employee non-compete is not weighed for reasonableness at all: it is simply void, no matter how short, narrow, or well-supported it is. The traditional three-dimension reasonableness analysis (reasonable in duration, geographic scope, and the activities restricted, and supported by a legitimate business interest and adequate consideration) now governs only pre-July-2023 agreements, the two statutory exceptions, and non-competes in the many states that still permit them.

Where non-competes are still permitted, no bright-line rule fixes a “typical” enforceable duration. Courts apply a fact-specific reasonableness test that weighs the time for which the restriction is imposed, along with the nature of the employment and the territory covered, against what is reasonably necessary to protect the employer’s business, with no bright-line ceiling. Geographic restrictions should correspond to the actual market where your business operates. A non-compete that imposes a “greater restraint than is reasonably necessary to protect the employer’s business, regard being had to . . . the territorial extent of the locality to which the prohibition extends” (Bennett, 134 N.W.2d 892), such as one purporting to bar all employment across an entire industry nationwide, is generally unenforceable as written.

Non-Solicitation Agreements

Non-solicitation agreements prevent former employees from soliciting your clients, customers, or other employees. Courts generally view these more favorably than non-competes because they are narrower in scope. A former employee can still work in the same industry; they simply cannot target your specific business relationships. Minnesota now embodies this distinction by statute: while it voids most new non-competes, Minn. Stat. § 181.988 expressly provides that a “covenant not to compete does not include a nonsolicitation agreement,” leaving such agreements enforceable subject to ordinary reasonableness review.

Effective non-solicitation clauses clearly define who is covered. Rather than a blanket prohibition on contacting “all customers,” specify that the restriction applies to customers the employee personally served or had material contact with during a defined period, such as the final 12 to 24 months of employment.

Non-Disclosure Agreements (Confidentiality Agreements)

Non-disclosure agreements protect confidential information and trade secrets. Minnesota defines a trade secret by its ongoing secrecy rather than by any set term: the information must derive independent economic value from not being generally known and be the subject of efforts that are reasonable under the circumstances to maintain its secrecy, and the statute imposes no time limit on that status (Minn. Stat. § 325C.01, subd. 5). They are the most readily enforceable type of restrictive covenant because they do not prevent someone from working; they only prevent misuse of proprietary information. Here too Minnesota’s non-compete ban reinforces the point: it carves out NDAs entirely, providing that a “covenant not to compete does not include a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information” (Minn. Stat. § 181.988, subd. 1).

Strong NDAs specifically define what constitutes confidential information. Vague references to “all company information” are less enforceable than detailed descriptions identifying categories such as customer lists, pricing structures, manufacturing processes, and strategic plans.

The Consideration Requirement

One of the most common reasons restrictive covenants fail is insufficient consideration. Consideration is the legal term for what the employee receives in exchange for agreeing to the restriction. For new hires, the job itself typically serves as adequate consideration, but only if the covenant is ancillary to the initial employment contract, meaning it is disclosed and agreed to at or before the start of work. A covenant first presented after the employee has already begun work is not supported by the job alone and “must be supported by independent consideration” (National Recruiters, Inc. v. Cashman, 323 N.W.2d 736 (Minn. 1982)).

Many states require that existing employees receive something of value beyond continued employment when asked to sign a new restrictive covenant. This could include a promotion, a raise, a bonus, stock options, or access to confidential information they did not previously have. Other jurisdictions have held that continued employment alone is sufficient, treating an at-will employer’s forbearance from terminating the employee as adequate consideration (see, e.g., Runzheimer Int’l, Ltd. v. Friedlen, 2015 WI 45, 362 Wis. 2d 100, 862 N.W.2d 879 (holding that “an employer’s forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant”)). Minnesota, by contrast, requires new, independent consideration, so relying on continued employment alone is risky here. The safest approach is to provide meaningful additional consideration whenever you ask a current employee to sign a restrictive covenant.

One important currency caveat: for a Minnesota employee non-compete entered into on or after July 1, 2023, consideration is irrelevant, because the covenant is void regardless of what supported it (Minn. Stat. § 181.988). The consideration analysis still matters for the covenants that remain enforceable, namely non-solicitation, confidentiality, and trade-secret agreements, pre-July-2023 non-competes, and sale-of-business covenants.

Reasonableness: The Central Standard

For the restrictive covenants that are still tested on their merits, courts apply a reasonableness standard. A covenant must protect a legitimate business interest without imposing undue hardship on the employee or harming the public interest. As Minnesota’s leading case puts it, “[w]here the restraint is for a just and honest purpose, for the protection of a legitimate interest of the party in whose favor it is imposed, reasonable as between the parties, and not injurious to the public, the restraint has been held valid” (Bennett v. Storz Broadcasting Co., 270 Minn. 525, 134 N.W.2d 892 (1965)). The three pillars of reasonableness are scope, duration, and geography.

Note the central limit, however: for non-competes this common-law standard is now superseded by statute in Minnesota. A new employee non-compete is not measured against the reasonableness test; under Minn. Stat. § 181.988 it is simply void. The reasonableness standard below therefore governs nondisclosure, confidentiality, trade-secret, and non-solicitation agreements, non-competes signed before July 1, 2023, and the surviving sale-of-business and dissolution exceptions.

Scope: The restricted activities must relate to the employee’s actual role and the employer’s legitimate interests. Restricting a software engineer from working in any capacity at a technology company is likely overbroad. Restricting that same engineer from working on competing products in the same technical domain is more defensible.

Duration: Shorter is generally safer. In states that apply a reasonableness test, courts commonly enforce restrictions of one to two years, and some industries, particularly those involving long sales cycles or deeply embedded client relationships, may support longer periods. There is no bright-line two-year ceiling, however; “two years” is a practitioner rule of thumb, not a judicial threshold, and courts assess duration case by case against the employer’s legitimate protectable interest. In Minnesota, of course, duration is beside the point for a new employee non-compete, which is void regardless of length.

Geography: Geographic limits should match the territory where the employee actually worked or where the company competes. With the rise of remote work and national business operations, geographic restrictions have become more nuanced. Some modern covenants focus on customer based restrictions rather than geographic ones, prohibiting contact with specific clients rather than work in specific locations.

The Evolving Legal Landscape

FTC Developments

In 2024, the Federal Trade Commission issued a final rule that would have banned most non-compete agreements nationwide. That rule never took effect. Before its scheduled September 4, 2024, effective date, a federal court in Texas held the rule “unlawful and set it aside” on a nationwide basis, concluding that the FTC promulgated it in excess of its statutory authority and that the rule was arbitrary and capricious (Ryan, LLC v. FTC, 746 F. Supp. 3d 369 (N.D. Tex. 2024)).

The legal challenges have since ended rather than continued. On September 5, 2025, the FTC voted to abandon its appeals (the Fifth Circuit appeal in Ryan and the Eleventh Circuit appeal in Properties of the Villages) and accede to vacatur (FTC press release, Sept. 5, 2025). Effective February 12, 2026, the FTC formally removed the Non-Compete Rule (16 C.F.R. part 910) from the Code of Federal Regulations (91 Fed. Reg. (Feb. 12, 2026)). The federal non-compete ban is dead, not merely blocked, and non-compete enforceability remains governed by state law.

State by State Variations

Restrictive covenant law varies dramatically from state to state, and the landscape is shifting quickly. As of early 2026, a widely cited March 2026 survey counts six states as banning most employee non-competes outright: California, Minnesota, Montana, North Dakota, Oklahoma, and Wyoming. California’s statute provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void” (Cal. Bus. & Prof. Code § 16600). North Dakota voids any contract that restrains a person “from exercising a lawful profession, trade, or business of any kind” (N.D. Cent. Code § 9-08-06). Oklahoma makes “[a]ny provision in a contract between an employer and an employee in conflict with” its statute “void and unenforceable,” allowing only a narrow bar on directly soliciting the former employer’s established customers (Okla. Stat. tit. 15, § 219A). Montana, though grouped with the total-ban states in that survey tally, actually operates under a common-law reasonableness regime that retains exceptions rather than voiding employee non-competes across the board, so a reasonable non-compete may still be enforceable there; counting Montana as a common-law jurisdiction leaves five states with statutory outright bans (California, Minnesota, North Dakota, Oklahoma, and Wyoming). Wyoming, by contrast, has voided most employee non-competes by statute and so belongs in the outright-ban tier rather than the common-law group.

Roughly a dozen more states (including Colorado, Illinois, Oregon, Washington, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Rhode Island, Virginia, and the District of Columbia) limit non-competes through employee income thresholds. These income thresholds change over time, so any static figure dates quickly: some states adjust their thresholds annually for inflation, while others use fixed statutory step-ups. For 2026, for example, Washington’s threshold is about $126,858.83 for employees and $317,147.09 for independent contractors, and Illinois sits at $75,000 (its next fixed step-up is not scheduled until January 1, 2027). Colorado sets its threshold through its Division of Labor Standards and Statistics and adjusts it annually. Watch Washington in particular: it has enacted a total ban (Engrossed Substitute House Bill 1155, signed March 23, 2026) that voids all employee and independent-contractor non-competes effective June 30, 2027, moving Washington from the threshold tier to the outright-ban tier on that date.

Minnesota itself belongs in the outright-ban tier: it voided most new employee non-competes effective July 1, 2023 (Minn. Stat. § 181.988). This patchwork of state laws means employers with operations in multiple states must tailor their restrictive covenants to comply with the specific requirements of each jurisdiction where they have employees, and must re-check the figures and the tier each year. (For the current nationwide picture, see Noncompete Agreements: What’s the Status of Laws Restricting Them Nationwide? (March 2026 Update), Katz Banks Kumin LLP / National Law Review, Mar. 4, 2026.)

The Blue Pencil Doctrine

Some states follow the “blue pencil” doctrine, which allows courts to enforce overly broad restrictive covenants in narrowed form rather than invalidating them entirely. A court in a strict blue-pencil state might strike out offending words, while a “reasonable modification” or “equitable reformation” state might go further and rewrite a five year non-compete down to two years or narrow a nationwide geographic restriction to the employee’s actual territory. Other states take an all or nothing approach: if any part of the covenant is unreasonable, the entire restriction fails.

Employers should not rely on blue penciling as a safety net. Courts vary in their willingness to rewrite agreements, and some view overly broad covenants as evidence of bad faith. The better strategy is to draft reasonable restrictions from the start.

Garden Leave Provisions

Garden leave clauses require the employer to continue paying the employee during the restricted period. This approach can strengthen enforceability where non-competes are permitted, because the employee is compensated for the limitation on their career. It is a common misconception, however, that several states “require” garden leave as a condition of enforceability. No state imposes garden leave as a strict, standalone condition. Massachusetts, the leading example, requires only that a non-compete be supported by “a garden leave clause or other mutually-agreed upon consideration” (Mass. Gen. Laws ch. 149, § 24L(b)(vii)), so garden leave is one of two alternatives, not a mandate. A few states tie continued payment to enforceability in specific ways. Washington and Nevada condition enforcement on continued payment in narrow circumstances such as layoffs, while Oregon makes a non-compete enforceable if the employer pays the employee at least 50 percent of base salary during the restricted period, for up to 12 months, as an alternative to meeting the state’s income threshold (Or. Rev. Stat. § 653.295). Florida’s 2025 CHOICE Act creates a rebuttable presumption favoring, but not requiring, garden leave agreements (Fla. Stat. §§ 542.41-.45).

A typical garden leave provision pays the employee 50% to 100% of their base salary during the non-compete period. While this represents an additional cost, it is often far less expensive than the damage caused by an unrestricted former employee competing against you. Bear in mind that in Minnesota, garden leave will not rescue a new employee non-compete, which is void regardless; it remains a tool for permitting states and for the covenants Minnesota still allows.

Practical Steps for Employers

• Tailor agreements to each role. A one size fits all restrictive covenant is more vulnerable to challenge. Senior executives with access to strategic plans warrant different restrictions than mid level managers.

• Be specific about protectable interests. Identify the trade secrets, client relationships, and confidential information that justify the restriction.

• Use reasonable time periods. Where non-competes are permitted, one to two years is the most commonly enforced range; start with the shortest period that adequately protects your interests. Remember that in Minnesota this advice applies to non-solicitation and confidentiality covenants, not to new employee non-competes, which are void regardless of length.

• Lead with non-solicitation and confidentiality in Minnesota. Because new employee non-competes are unenforceable here, build your protection around the covenants the law still permits, carefully defined NDAs and customer or employee non-solicitation clauses.

• Provide adequate consideration. For existing employees, offer a meaningful benefit in exchange for signing, since Minnesota requires independent consideration for a restrictive covenant signed after work begins.

• Include severability clauses. If one provision is struck down, the remaining provisions should survive.

• Review and update regularly. As employees change roles, as your business evolves, and as laws change, update your restrictive covenants accordingly.

• Consult with counsel in each relevant jurisdiction. Multi state employers need agreements that comply with the laws of every state where they have restricted employees.

• Enforce consistently. Selective enforcement undermines future claims. If you have restrictive covenants, enforce them when they are violated.

Enforcement Strategies

Having enforceable restrictive covenants is only part of the equation. You must also be prepared to enforce them. This begins with exit procedures: conduct exit interviews, remind departing employees of their obligations, and document the process. If a violation occurs, act quickly. Courts are more sympathetic to employers who seek injunctive relief promptly rather than waiting months to act.

Preliminary injunctions and temporary restraining orders are the primary enforcement tools. These court orders can prevent a former employee from continuing to violate the covenant while the case proceeds. The standard is a multi-factor balancing test, and it is broader than the “likelihood of success, irreparable harm, balance of hardships” shorthand suggests. In Minnesota state court, courts weigh the five Dahlberg factors: the nature of the parties’ relationship, the balance of harm to each side, the likelihood of success on the merits, public-policy considerations, and the administrative burdens of supervision (Dahlberg Bros., Inc. v. Ford Motor Co., 272 Minn. 264, 137 N.W.2d 314 (1965)). Federal courts in the Eighth Circuit apply the parallel four-factor test of “(1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest” (Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109 (8th Cir. 1981) (en banc)). Both tests treat the public interest, an element the three-part shorthand omits, as express.

Conclusion

Restrictive covenants remain one of the most effective tools for protecting your business from unfair competition by former employees, but which covenant works now depends heavily on where you operate. In Minnesota, new employee non-competes are void, so your protection should center on carefully drafted nondisclosure and non-solicitation agreements, while the federal ban that loomed in 2024 is gone and the rules continue to shift state by state. Well drafted, reasonable non-solicitation and confidentiality agreements continue to be enforced across most jurisdictions, and non-competes still hold up in the many states that permit them. The key is precision: tailor each agreement to the specific employee, the specific role, and the specific jurisdiction, and confirm the current law in each state before you rely on it. Invest the time and legal resources to get these agreements right, because the cost of an unenforceable covenant becomes apparent only when you need it most.

This article is for informational purposes only and does not constitute legal advice. Laws governing restrictive covenants vary by jurisdiction and change frequently. Consult with a qualified attorney to address your specific business needs and ensure compliance with applicable laws.