What Happens After a Non-Solicitation Agreement Breach?

How does Minnesota law treat a non-solicitation agreement after the noncompete ban?

Minnesota’s 2023 noncompete ban does not void a non-solicitation agreement. The statute defines a covenant not to compete to exclude “a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer,” so a court judges your clause under the common-law rules for restrictive covenants.

The ban itself is short: “Any covenant not to compete contained in a contract or agreement is void and unenforceable” (Minn. Stat. § 181.988, subd. 2). It “applies to contracts and agreements entered into on or after” July 1, 2023 (Minnesota Session Laws 2023, chapter 53, article 6, section 1). The ban has two exceptions, each of which makes a covenant not to compete “valid and enforceable” (subd. 2(b)). For a sale of a business: “The person selling the business and the partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time” (subd. 2(b)). For a dissolution: “The partners, members, or shareholders, upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation may agree that all or any number of the parties will not carry on a similar business within a reasonable geographic area where the business has been transacted” (subd. 2(b)). A void noncompete does not take the rest of the agreement with it: “Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete” (subd. 2).

The definition matters more than the label on the clause. Under § 181.988, subd. 1, a covenant not to compete “restricts the employee, after termination of the employment, from performing”:

• “work for another employer for a specified period of time”
• “work in a specified geographical area”; or
• “work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.”

A clause titled “Non-Solicitation” that restricts work in one of those ways meets that definition. Pressing it carries a cost, because a court “may award an employee who is enforcing rights under this section reasonable attorney fees” (subd. 2). For the tools the ban leaves in place, see the protections that remain after Minnesota’s noncompete ban.

What makes a non-solicitation agreement enforceable in Minnesota?

A Minnesota court enforces a non-solicitation agreement when it is supported by consideration, protects a legitimate interest such as customer relationships, and imposes no greater restraint than that interest needs. If the clause reaches too far, the court can narrow it rather than strike it, unless the clause operates as a noncompete that the 2023 ban voids.

Reasonableness. The Minnesota Supreme Court asks “whether or not the restraint is necessary for the protection of the business or good will of the employer, and if so, whether the stipulation has imposed upon the employee any greater restraint than is reasonably necessary to protect the employer’s business, regard being had to the nature and character of the employment, the time for which the restriction is imposed, and the territorial extent of the locality to which the prohibition extends” (Bennett v. Storz Broadcasting Co., 134 N.W.2d 892 (Minn. 1965)). The court in Bennett also wrote that “Such contracts are looked upon with disfavor, cautiously considered, and carefully scrutinized.”

A legitimate interest. In Softchoice, Inc. v. Schmidt, 763 N.W.2d 660 (Minn. App. 2009), the Minnesota Court of Appeals affirmed an order barring a former branch manager from soliciting clients he had dealt with. It wrote that “Softchoice has a legitimate business interest in protecting ongoing customer relationships that it has spent years developing and nurturing.” The record showed that a customer relationship in that job took over a year to develop, and the court held “the one-year duration of the non-solicitation period ordered by the district court was not unreasonable.”

Consideration. Timing decides what the agreement needs. In National Recruiters, Inc. v. Cashman, 323 N.W.2d 736 (Minn. 1982), the court held: “Where such a covenant is not ancillary to the initial oral employment contract, it can be sustained only if supported by independent consideration.” In Softchoice, a promotion counted, and the court held that it served as consideration “at the time when the terms of the promotion have been defined and the promotion has been formally offered and accepted in writing.”

Narrowing an overbroad clause. In Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127 (Minn. 1980), the court approved a trial court’s rewrite of an overbroad covenant. It wrote that “in employment cases, a court should be permitted to make changes such as those made by the trial court in this case rather than be compelled to strike down the entire agreement as unreasonable.” That equitable modification does not reach a clause the 2023 ban voids: a covenant not to compete in an agreement entered into on or after July 1, 2023, other than one that subd. 2(b) makes “valid and enforceable” in a sale or dissolution of a business. For a voided clause, the statute provides: “Any covenant not to compete contained in a contract or agreement is void and unenforceable” (§ 181.988, subd. 2). For drafting detail, see how to draft a non-solicitation clause that holds up.

What counts as a violation of a non-solicitation agreement?

A violation is conduct the clause’s own words prohibit. A clause barring solicitation reaches the former employee’s outreach to covered customers or employees; a clause that also bars accepting business from them reaches more. The noncompete ban’s exclusion names “a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer,” and in agreements entered into on or after July 1, 2023, the ban voids a post-employment restriction on “work for another employer for a specified period of time.” Before departure, an employee’s duty of loyalty separately bars soliciting your customers even without any agreement.

The words control. Courts read the clause you wrote, and “It is well-established that any ambiguity in a contract will be resolved against the draftsman” (Cherne Industrial, Inc. v. Grounds & Associates, Inc., 278 N.W.2d 81 (Minn. 1979)). In Sysdyne Corp. v. Rousslang, 860 N.W.2d 347 (Minn. 2015), the employee had agreed that for 12 months he would not “in any manner contact, solicit or cause to be solicited, customers or former or prospective customers” of his employer in seven metro counties. That clause reached contact, not only solicitation.

Active solicitation. In Davies, the court concluded that “the agency’s actual need for protection is limited to prohibiting its former employees from actively soliciting business from agency customers.” Because “the trial court found that Richard did not solicit bonds for anyone following the termination of his employment with the agency,” the court held the agency was “not entitled to damages.”

Before the employee leaves. “An employee’s duty of loyalty prohibits her from soliciting the employer’s customers for herself, or from otherwise competing with her employer, while she is employed” (Rehabilitation Specialists, Inc. v. Koering, 404 N.W.2d 301 (Minn. App. 1987)). The same court added that “An employee has the right, therefore, while still employed, to prepare to enter into competition with her employer.” Where preparation ends and solicitation begins “is a question of fact to be determined based on all the circumstances of the case.” In Koering, an administrator with no written covenant lined up contracts with a major customer before resigning, and the court reversed summary judgment for her. See an employee’s duty of loyalty while still employed.

How does a court decide whether to stop the solicitation?

A Minnesota court can stop solicitation before trial with a temporary restraining order (TRO) or a temporary injunction. It weighs five factors, the most important being your likelihood of winning, and it weighs the harm to each side. A clause declaring that any breach causes irreparable harm does not decide that question.

The procedure. A TRO without notice requires that “it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or that party’s attorney can be heard in opposition” (Minn. R. Civ. P. 65.01), and that “the applicant’s attorney states to the court in writing the efforts, if any, which have been made to give notice or the reasons supporting the claim that notice should not be required.” “No temporary injunction shall be granted without notice of motion or an order to show cause to the adverse party” (Rule 65.02). Either order requires security from you “for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained” (Rule 65.03).

The five factors. Softchoice applied them to a non-solicitation agreement: the parties’ relationship before the dispute, the harm to each side from granting or denying relief, the likelihood of success on the merits, public policy, and the burden of supervising the order. The court wrote: “Of these factors, the most important is a party’s likelihood of prevailing on the merits at trial.” It affirmed the injunction even though public policy weighed against it, because likelihood of success favored the employer.

Irreparable harm. St. Jude Medical, Inc. v. Carter, 913 N.W.2d 678 (Minn. 2018) involved a permanent injunction after trial, and its rules on harm come from that posture. The court recognized that harm may be inferred in “situations where customer good will is at stake, when an employee takes business secrets with an intent to benefit from the secrets, or when a risk exists that the secrets will be disclosed in the subsequent employment and result in irreparable damage.” It added that “such an inference can be rebutted by evidence to the contrary,” and that the employer “must show more than the breach of the restrictive covenant.” The agreement’s clause declaring irreparable harm did not bind the court: “Allowing the terms of private agreements to dictate whether a court must issue an injunction would interfere with a court’s equitable jurisdiction and powers.”

Timing. An order to enforce the covenant itself generally ends with the covenant. Cherne stated: “Thus, if the restrictive period of a covenant not to compete has expired, an injunction will not be granted to enforce the covenant.” The court added: “Nevertheless, there may be situations where injunctive relief extending beyond the expiration of the period established by the covenant is appropriate.” In Cherne itself, the court upheld a 2-year injunction entered after the covenant period had run, as a remedy for the former employees’ wrongful use of confidential customer information. For how these motions run, see how temporary injunction motions run in Minnesota.

What money damages can an employer recover for a breach?

A Minnesota employer can recover the profits it lost because of the breach, if it proves them with reasonable certainty, or in some cases the profits the former employee made from your customers. A liquidated damages clause is enforced only if it meets a two-part test, and punitive damages are not available for a breach of contract alone.

The claim. You prove “(1) formation of a contract, (2) performance by plaintiff of any conditions precedent to his right to demand performance by the defendant, and (3) breach of the contract by defendant” (Lyon Financial Services, Inc. v. Illinois Paper & Copier Co., 848 N.W.2d 539 (Minn. 2014)).

Lost profits. Under Minnesota’s general contract rule, lost profits “may be recovered where they are shown to be the natural and probable consequences of the act or omission complained of and their amount is shown with a reasonable degree of certainty and exactness,” and “The controlling principle is that speculative, remote, or conjectural damages are not recoverable” (Cardinal Consulting Co. v. Circo Resorts, Inc., 297 N.W.2d 260 (Minn. 1980), a hotel-contract case). In Sysdyne, “The trial court entered judgment against Rousslang in the amount of $158,240 plus costs and interest on the breach of contract claim,” for customers he took to his new employer.

The employee’s gain. In Cherne, former employees took customer lists and used them to win contracts with their former employer’s customers. The court held that “where an employee wrongfully profits from the use of information obtained from his employer, the measure of damages may be the employee’s gain,” and affirmed an award that represented “10 percent of defendants’ revenue from contracts with former or prospective customers of Cherne.” It also held that an employer who proves the breach “may obtain both injunctive relief and damages.”

Liquidated damages. A sum fixed in advance is not enforceable unless “the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach” and “the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation” (Gorco Construction Co. v. Stein, 99 N.W.2d 69 (Minn. 1959)). See liquidated damages versus penalty clauses.

Punitive damages. “The general rule is that punitive damages are not recoverable in actions for breach of contract” (Cherne). “Unless the willful and malicious conduct constitutes an independent tort, Minnesota law does not permit recovery of punitive damages” (Barr/Nelson, Inc. v. Tonto’s, Inc., 336 N.W.2d 46 (Minn. 1983)). Where a tort supports them, they are allowed “only upon clear and convincing evidence that the acts of the defendant show deliberate disregard for the rights or safety of others” (Minn. Stat. § 549.20, subd. 1). “Upon commencement of a civil action, the complaint must not seek punitive damages” (Minn. Stat. § 549.191); a party may add the claim only by a motion that “must be accompanied by one or more affidavits showing the factual basis for the claim,” and the court grants it “if the court finds prima facie evidence in support of the motion.”

A dollar figure in a demand letter is a negotiating position, and the rules above decide what a court can award. In one demand I analyzed for a former employee, the former employer framed its figure as its legal fees plus the cost of replacing the employee who left.

When can an employer recover its attorney fees?

A Minnesota employer recovers its attorney fees only when the agreement has a fee clause, a statute allows fees, or a recognized exception applies. One exception lets you recover, from a competitor that wrongfully caused the breach, the fees you spent enforcing the agreement against the employee.

The default rule. “We have long held that attorney fees are not recoverable in litigation unless there is a specific contract permitting or a statute authorizing such recovery” (Barr/Nelson). Cherne stated the same rule: “Generally attorneys fees may not be awarded to a successful litigant absent specific contractual or statutory authority.” I suggest a fee clause in every non-solicitation agreement, because without one each side pays its own lawyers unless a statute or the exception below applies.

Fees from the interfering competitor. In Kallok v. Medtronic, Inc., 573 N.W.2d 356 (Minn. 1998), a noncompete case, the court held that “the third-party litigation exception to the American rule permits a court to award attorney fees as damages if the defendant’s tortious act thrusts or projects the plaintiff into litigation with a third party.” Medtronic recovered from the hiring company the fees and expenses it spent enforcing its agreements against the employee.

Trade secret fees. If the customer information is a trade secret, “If (i) a claim of misappropriation is made in bad faith, (ii) a motion to terminate an injunction is made or resisted in bad faith, or (iii) willful and malicious misappropriation exists, the court may award reasonable attorney’s fees to the prevailing party” (Minn. Stat. § 325C.04). Under federal law, “If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided” (18 U.S.C. § 1833(b)). That rule applies only to “contracts and agreements that are entered into or updated after the date of enactment of this subsection,” and the DTSA was approved May 11, 2016. That notice is the whistleblower-immunity notice the DTSA requires in employee agreements covering confidential information.

Fees can also run against you. Under the noncompete ban, an employee “who is enforcing rights under this section” may recover “reasonable attorney fees” (§ 181.988, subd. 2).

How can the company that hired the employee be liable?

The hiring company is liable for tortious interference with contract when it knew of your agreement, intentionally procured its breach without justification, and caused you damages. You must show “more than the mere offering of a job,” and a company that reasonably relied on its attorney’s advice after a reasonable inquiry may be justified.

The elements. Kallok listed them: “(1) the existence of a contract; (2) the alleged wrongdoer’s knowledge of the contract; (3) intentional procurement of its breach; (4) without justification; and (5) damages.” The court held that “if a noncompete agreement is deemed valid and if the elements of tortious interference are established, interference with the noncompete agreement by a third party is a tort for which damages are recoverable.” In Kallok, the hiring company’s chief executive knew of the agreements, recruited the employee over several meetings, and gave its outside counsel incomplete information. The court held that it “may not rely upon an infirm consultation with counsel and the resulting advice as a justification for its action.”

More than a job offer. In National Recruiters, the claim against the new employers failed: “National must show more than the mere offering of a job.”

Advice of counsel. In Sysdyne, the hiring company sent the employee’s agreement to its outside counsel, was told it was unenforceable, and hired him. The court held that “the justification defense to tortious interference with contract may encompass reasonable reliance on advice of counsel,” and held that “the trial court did not err in concluding that Xigent,” the hiring company, “met its burden of proving the justification defense.” The employee still owed the contract judgment.

Writing to the new employer changes its position. When a former employee asked me about a former employer’s demand under an employee non-recruiting clause, the former employer had also written to the new employer, claiming the company interfered with the agreement and threatening an injunction and damages. That letter gave the new employer its own exposure from the same facts. For how the hiring company sees these claims, see the hiring company’s side of an interference claim.

How do trade secret claims apply when customer information was taken?

When the former employee took a customer list or other customer information that qualifies as a trade secret, you can add a MUTSA claim, and possibly a federal DTSA claim, to the contract claim. MUTSA keeps your contract remedies in place, allows an injunction against actual or threatened misappropriation, and lets the court award exemplary damages “in an amount not exceeding twice any award” of damages when “willful and malicious misappropriation exists.”

What qualifies. MUTSA’s definition covers “information, including a formula, pattern, compilation, program, device, method, technique, or process,” that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use,” and “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy” (Minn. Stat. § 325C.01, subd. 5). In Cherne, decided before MUTSA, the court held that “a finding that the customer lists are confidential was reasonably supported by the evidence,” on a record where the employer spent years and money compiling them, kept them unpublished, and the departing employees took and used them. See when a customer list is a trade secret.

Misappropriation. It includes “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means,” and “disclosure or use of a trade secret of another without express or implied consent by a person who,” at the time of disclosure or use, “knew or had reason to know that the discloser’s or user’s knowledge of the trade secret was” “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use” (subd. 3).

Remedies. “Actual or threatened misappropriation may be enjoined” (Minn. Stat. § 325C.02). “Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss,” and “If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under paragraph (a)” (Minn. Stat. § 325C.03). MUTSA does not displace “contractual remedies, whether or not based upon misappropriation of a trade secret” (Minn. Stat. § 325C.07).

The federal claim. The DTSA lets an owner sue “if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce” (18 U.S.C. § 1836), and requires that “the owner thereof has taken reasonable measures to keep such information secret” (18 U.S.C. § 1839). A court may grant a DTSA injunction “to prevent any actual or threatened misappropriation described in paragraph (1) on such terms as the court deems reasonable,” but the order may not “prevent a person from entering into an employment relationship,” and any conditions on that employment must “be based on evidence of threatened misappropriation and not merely on the information the person knows.”

What risks does an employer take on when it enforces a non-solicitation agreement?

Enforcing a non-solicitation agreement carries risks of its own. Contact with the new employer that goes too far can bring an interference or defamation claim, and the security you post can pay the employee’s losses if the injunction proves wrongful. A clause that operates as a noncompete can cost you the employee’s attorney fees, and a customer contract barring clients from hiring your employees can be void.

Letters to the new employer. In Bennett, the employer’s attorneys wrote the radio station negotiating with a departing announcer, and “KSTP thereupon withdrew from further negotiations with plaintiff.” The announcer sued his former employer for interference. The Minnesota Supreme Court held that a former employer may be justified “where the interference is made in good faith in an attempt to assert a legally protected interest,” but reversed summary judgment for the employer: “As we view the record, there are important fact questions which should be answered before it can be said that justification appears as a matter of law.” I suggest sending such a letter only after confirming the clause is enforceable and that the conduct falls inside it, because the letter’s justification rests on both.

Words about the former employee. In National Recruiters, the employer’s owner called the recruiter’s new employer and insulted the recruiter’s fitness for the job, and the court held the words slander per se as a matter of law. I suggest keeping every communication about a departed employee to the agreement and the conduct, because a personal attack can create a claim against you.

Security and fees. If a court finds the employee was wrongfully enjoined, the security you posted under Rule 65.03 is available to pay the employee’s costs and damages. If your clause operates as a noncompete in an agreement entered into on or after July 1, 2023, a court may award the employee reasonable attorney fees under § 181.988, subd. 2.

Clauses with customers. “No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider,” and a provision that does so “is void and unenforceable” (Minn. Stat. § 181.9881, subd. 2), in “contracts and agreements entered into on or after” July 1, 2024 (Minnesota Session Laws 2024, chapter 110, article 2, section 12). Subdivision 3 exempts “workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date.” When an existing contract has one, “the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section.” When I analyzed a growing Minnesota service business’s customer agreement, its mutual non-solicitation clause covered each side’s employees, and the half barring the business’s clients from hiring its people was void in agreements signed since July 1, 2024. See non-solicitation clauses between businesses.

Deadlines. A contract claim, a MUTSA claim, and a DTSA claim each carry a deadline to sue. I suggest checking the current text of Minn. Stat. § 541.05, subd. 1, which covers an action “upon a contract or other obligation, express or implied, as to which no other limitation is expressly prescribed,” Minn. Stat. § 325C.06, and 18 U.S.C. § 1836(d) for the period that applies to you.

What should a Minnesota employer do after finding a breach?

After finding a breach, I suggest reading the clause’s exact words against the conduct, confirming the agreement had consideration and, for one signed on or after July 1, 2023, restricts no work in the three ways § 181.988 lists, unless it is a sale-of-business or dissolution covenant that subd. 2(b) makes “valid and enforceable.” I also suggest preserving the evidence before any letter goes out. Much of that evidence sits in your own systems: the signed agreement, the customer list and who could open it, emails forwarded to personal accounts, and the customers or employees who moved after the person left.

Then match the remedy to the harm. A temporary injunction requires notice to the other side, a showing “by affidavit, deposition testimony, or oral testimony in court” that “sufficient grounds exist therefor,” and security. Damages require proof of lost profits with reasonable certainty or of the former employee’s gain. Fees require a fee clause, a statute, or a competitor’s wrongful interference. A letter to the new employer can open an interference claim, and it can also draw one back against you if the clause or the conduct does not hold up.

If you would like me to analyze whether your non-solicitation agreement holds up, or what a breach lets you recover and stop, email [email protected] with a brief description, and hold the agreement and any customer or confidential documents until an intake and conflict check are complete. For related employer questions, see my Minnesota employment law practice page.