Noncompete vs. Non-Solicitation Agreements
A noncompete prevents a departing employee from competing in your market. A non-solicitation prevents them from poaching your customers or employees. These are very different tools—and enforceability varies by state. California, for example, severely limits noncompetes. In Minnesota, a noncompete must be disclosed at the time of the job offer to be enforceable. When I draft a noncompete for clients, I always include a non-solicitation and confidentiality provision in the same agreement.
Enforcing These Agreements
If an employee breaches a noncompete or non-solicitation, you can sue both the employee and the competitor who hired them. The legal theory against the competitor is tortious interference with contract—once you send a cease-and-desist letter putting them on notice, they become liable if they continue benefiting from the breach. Courts can also issue temporary restraining orders to enforce the agreement during litigation.
Protecting Trade Secrets and Intellectual Property
Departing employees cannot take your customer database, proprietary processes, or confidential information—that violates the Trade Secrets Act and constitutes a breach of fiduciary duty. Beyond restrictive covenants, protect your competitive position through patents, trademarks, and copyrights. If a competitor uses false advertising or deceptive practices, you may have claims under the Lanham Act or state consumer protection statutes.
Practical Steps for Business Owners
Have every employee sign a well-drafted noncompete, non-solicitation, and confidentiality agreement at the time of hire. Limit access to sensitive information on a need-to-know basis. Document your trade secrets and proprietary processes so you can prove what was taken if a dispute arises. These preventive measures cost far less than litigation after the fact.
Video Transcript
In this video, you get answers to these questions:
- What Are the Legal Protections Available to Prevent Competitors from Poaching Your Employees?
- Can You Include Noncompete Clauses in Your Employee Contracts?
- What Legal Options Are Available to Restrict Employees from Contacting Your Customers After They Leave Your Company?
- How Can You Enforce Noncompete Agreements If an Employee Breaches the Terms?
- Can You Pursue Legal Action Against a Competitor for Wrongful Interference with Your Business Relationships?
- How Can You Protect Your Intellectual Property, Including Patents, Trademarks, and Copyrights?
- Can You Obtain Injunctive Relief to Prevent a Competitor from Using Your Trade Secrets or Proprietary Information?
- Can You Sue a Competitor Engaging in False Advertising or Misleading Marketing Practices?
- What Legal Options Are Available If a Competitor Is Using Deceptive Trade Practices to Lure Away Your Customers?
- What Legal Protections Are Available If a Competitor Is Engaging in Anti-Competitive Behavior or Price-Fixing?
- What Legal Options Are Available If a Competitor Is Engaging in Cyber Espionage or Hacking to Steal Your Intellectual Property or Confidential Information?
- Can You Pursue Legal Action Against a Competitor Who Is Using Your Confidential Information to Gain a Competitive Advantage?
- How Can You Ensure That Your Employment Contracts Are Compliant with State and Federal Employment Laws?
- Can You Obtain a Court Order to Prevent a Former Employee from Sharing Your Confidential Information with a Competitor?
- What Legal Options Are Available If a Competitor Is Using False or Misleading Advertising to Damage Your Business Reputation?
- What Legal Protections Are Available If a Competitor Is Engaging in Price Discrimination or Engaging in Predatory Pricing Practices?
- Can You Obtain a Court Order to Prevent a Competitor from Using Your Company Name or Logo in a Way That Could Cause Confusion or Harm Your Business Reputation?
Welcome. I am Aaron Hall, an attorney for business owners and entrepreneurial companies. Just so you know, my goal is to help you spot issues to discuss with your attorney, not to actually have you not hire an attorney or to try to get you to hire me.
In fact, I can only represent people in Minnesota or for issues relating to Minnesota. So this is free educational content to help empower you and educate you as you go through and navigate the challenges of growing a great business.
Today we are talking about how to stay ahead of your competitors, and I have put together a collection of questions from non-attorneys, from business owners, and average individuals wondering about topics related to staying ahead of competitors.
And as you will see here, there is a common thread. How do I protect confidential information, trade secrets, training that I give my employees, and preventing that from being used against me with a competitor? What about relationships that I build? How do I prevent those from going over to a competitor? So we are going to talk about that today, and I am going to answer a series of questions that I haven’t looked at yet, so we will see how that goes.
What Are the Legal Protections Available to Prevent Competitors from Poaching Your Employees?
In most states, you can have employees sign a noncompete agreement or a non-solicitation agreement.
Let’s talk about the difference there and then, which states have different rules, and some other factors to consider. So a noncompete agreement says once the employee comes to work for you, they cannot compete with you in the marketplace. Now, a non-solicitation agreement says once the employee comes to work with you, they cannot solicit your employees or your customers or clients after they leave. So as you can see, that is very different. So let’s say, for example, a hairstylist signs a noncompete, and it says the stylist will not open a salon or otherwise cut hair within a five-mile radius of the salon you have hired them to. All right. Well, that is a noncompete. A non-solicitation would say they cannot take their customers or clients or your employees from your salon to their new salon after they leave. So noncompete and non-solicitation are very different.
In most states, a non-solicitation agreement is enforceable. In some states, a noncompete is not. California, for example, is famous for having very limited circumstances when a noncompete agreement can be enforced. This is a state-by-state issue and it is important to take a look at your state law regarding whether a noncompete is enforceable, a non-solicitation is enforceable, or other similar types of agreements.
Can You Include Noncompete Clauses in Your Employee Contracts?
The answer is usually yes. The question is whether they are enforceable. For example, in Minnesota, for a noncompete agreement to be enforceable, it needs to be mentioned to the employee at the time of the job offering. For example, you can’t just say, Hey, employee. Would you like to work for me?” And the employee quits her job at another employer, comes to work for you, and then on the first day, you are like, okay, now you have to sign this noncompete. Minnesota courts have said, “No, that is not enforceable.” That noncompete is non-enforceable unless the employee is paid additional compensation to sign the noncompete agreement.
What Legal Options Are Available to Restrict Employees from Contacting Your Customers After They Leave Your Company?
Well, if an employee has a relationship with a customer, the general rule is after your employee ends employment with you, they can contact your customers. They can compete. Now, they are not allowed to take your database with them. That would generally be a violation of the Trade Secrets Act, and it would be a breach of fiduciary duty. So generally, employees can’t take data with them. But there is nothing prohibiting an employee from competing with you using a relationship acquired during employment with you unless there is a noncompete agreement. If you have had the employee enter into a proper noncompete agreement, then for the period of time designated in the noncompete agreement, assuming it is enforceable, that employee could not reach out and compete with you, or in the case of a non-solicitation agreement, contact your employees or customers.
By the way, you might be wondering, is a noncompete agreement usually in the same document as a non-solicitation agreement? Yes. Whenever my clients ask me to draft a noncompete agreement, I put a non-solicitation provision in there. Likewise, if they ask me to draft a non-solicitation agreement, I will ask them, do you want it to have a noncompete as well? And there is one other part that is normally in those, and that is a confidentiality agreement. So it is very clear that the employee has a duty of confidentiality for any confidential information the employee accesses while employed by you as the employer.
How Can You Enforce Noncompete Agreements If an Employee Breaches the Terms?
You can sue the employee, and you can sue the company that they go to work for. Typically, what happens is you start out by sending a cease and desist letter, and if the company, which is now on notice that they are benefiting from the employee’s breach of an agreement, if that company continues to move forward and utilize the benefit from that employee, that improper benefit, you can sue that company.
Let me explain a little bit more. It is considered tortious interference with contract. If one party has a contract and somebody else interferes or helps that party breach it, the one who helps is tortiously interfering. Tortious means tort. It is a tort, or it is a cause of action. It is a legal claim to interfere in another person’s contract, for example, to encourage breach. So, if you have a noncompete agreement and a non-solicitation agreement with an employee, and that employee then goes to work for a competitor, and that employee is breaching the noncompete and non-solicitation agreement.
So, in other words, they are competing in an area where they are not supposed to. It is a breach of the agreement, and they are soliciting your employees or your customers to come to that competitor. You send the competitor a cease and desist letter, which says you are tortiously interfering with a noncompete agreement or a non-solicitation agreement with the employee, and by torturously interfering, you are just as liable. So the competitor is now on notice. Often they will let the employee go, or they will stop using any sort of benefit like they will stop working for the customers or clients that you had that the employee is trying to bring over. But if they don’t, you have a right to go after them. Not only can you sue both the employee and the competitor, you can seek what is called an injunction or a restraining order, sometimes called a temporary injunction or a temporary restraining order or a TRO. It is effectively the same thing. It is where the court says, “Hey, you have to follow the rules of the contract even during this lawsuit, prior to a decision being made at trial.”
Can You Pursue Legal Action Against a Competitor for Wrongful Interference with Your Business Relationships?
Yes. You absolutely can sue a competitor for this. There are a few different legal doctrines that are applicable in this scenario. First, if the competitor helping one of your former employees or benefiting as one of your former employees breaches a noncompete agreement or a non-solicitation agreement. You can certainly sue the competitor for that. That is called tortious interference with contract. Next, there are torts in most states that say you cannot tortiously interfere with a contract or a prospective business advantage. Now, it is a little bit beyond the scope of this video to talk about getting into that, but the bottom line is there are times when the court has said there is legal competition, and then there is an illegal competition or unfair competition. One category of unfair competition is tortiously interfering with the prospective business advantage. It is basically where a competitor is improperly using information that they shouldn’t have in order to get an advantage. In those circumstances, you can sue the competitor as well.
How Can You Protect Your Intellectual Property, Including Patents, Trademarks, and Copyrights?
Patents are protected by registration. Trademarks are protected by either registering them or just using them. If you use them, you get what is called common law protection. It is not as strong as registering, but you get at least some protection from a trademark. For copyrights, you can get protection by registering a copyright with the US Copyright Office or by simply creating something. In other words, every time you create something, you get a common law copyright.
However, you can’t sue for copyright infringement unless you have registered that copyright. There is also another big category of intellectual property, and that is trade secrets, confidential information inside the company—for example, Kentucky Fried Chicken. Let’s talk about the recipe of making that chicken. That is a trade secret. To my knowledge, there is no patent out there because patents expire. After just over 20 years, patents expire. That is why all these pharmaceutical companies, they get a patent, and they have a couple of decades to recoup their investment in that formula because after that, the generic drugs can start coming out.
Kentucky Fried Chicken doesn’t have a patent in its recipe. It has a trade secret, a secret recipe for that chicken, which only a few people know. The only way to protect a trade secret is to make sure that everybody who has access to it within the company knows that it is a secret. That its secret cannot be released outside the company, and if somebody outside the company needs to know about it, like, let’s say, for example, an IT company is providing tech support for KFC, well then the IT company has to sign a confidentiality agreement. That is the only way to protect a trade secret. You have to make reasonable efforts to keep it confidential.
If an employee leaves your company and then starts sharing the trade secret of yours with a competitor or with the public, or they start their own company, and they start benefiting from it, you can go after them. So say, for example, one of the employees at KFC who have access to the secret recipe for KFC’s chicken leaves and starts a competitor. Let’s say it is called Tennessee Fried Chicken (TFC). Could that employee be sued? Absolutely. Why? Because the employee took a trade secret and used it for the employee’s benefit outside the company. That is a violation of the Trade Secrets Act. The Trade Secrets Act protects confidential information within companies.
Can You Obtain Injunctive Relief to Prevent a Competitor from Using Your Trade Secrets or Proprietary Information?
Yes. What this means is if somebody is using your secret information, can you get the court to order them to stop? Absolutely. You file a case in court and you immediately bring a motion for a temporary injunction or a temporary restraining order. It is temporary because it is in place until the trial occurs, which means the entire time of the lawsuit.
Can You Sue a Competitor Engaging in False Advertising or Misleading Marketing Practices?
Usually, you can. It is under the broad category of unfair trade practices, and most states have a statute which prevents deception in marketing. Now it has to be clear deception, usually. As you might know from seeing on TV, there is a lot of stuff that is questionable. It is not clearly misleading, and courts usually let that kind of stuff go. Likewise, if it is what is called puffery if it is making statements like we are the best plumbers, we are the cheapest plumbers, we are the plumbers most people call.
Those sorts of statements usually don’t get a company in trouble. It is the ones where they make factual statements that are misleading or specifically a comparison to a competitor that is false. For example, let’s say the study said Coca-Cola is healthier than Pepsi. Or Coca-Cola, you know, and there is some sort of health statement regarding Pepsi in the comparison there. That is going to come down, then. Is it a false statement? And if so, courts likely going to rule in favor of the company who is harmed by the false statement.
What Legal Options Are Available If a Competitor Is Using Deceptive Trade Practices to Lure Away Your Customers?
Quite simply, you can sue them. Prior to a lawsuit, you might consider sending a cease and desist letter, but most of the time these issues are resolved in lawsuits. And then once the lawsuit starts, you might also seek a restraining order or a temporary injunction.
What Legal Protections Are Available If a Competitor Is Engaging in Anti-Competitive Behavior or Price-Fixing?
Your options at that point are to sue, and there are a number of statutes that are going to be relevant to anti-competitive behavior and price fixing. These are sometimes called antitrust statutes or monopoly statutes, but there are certain competitive practices that are against public policy.
In other words, we as a people have said we don’t want to allow certain competitive practices, and so either through congress or through state legislatures, laws have been enacted to prohibit certain competitive practices. For example, there are laws that say you can’t sell a product for less than you bought it for in most circumstances. Why? Because what happens is a big national competitor can move into a small town, offer products for below the price they paid. So they are going to lose money for a while, and of course, everybody is going to go to them, which eliminates all the competition in an area. And then, as soon as all that competition is gone, this big company raises its prices back up and everybody keeps going to them now because those competitors are out of the marketplace. Legislatures and Congress have said that is the sort of predatory behavior that is not permitted in a competitive marketplace in a free economy. That is harmful to our economic system, and so it is prohibited.
What Legal Options Are Available If a Competitor Is Engaging in Cyber Espionage or Hacking to Steal Your Intellectual Property or Confidential Information?
There are federal laws and state laws against hacking. This is serious. It is a crime. It is also a civil violation, which means you can do prison time for it. You can pay a hefty penalty, and you can owe damages to the company who you stole from. This is a really big deal, and I am glad that these laws are so strict because there is no place in a good economy for companies hacking each other, trying to steal information, and using those sort of anti-competitive, predatory practices to win in the marketplace.
Can You Pursue Legal Action Against a Competitor Who Is Using Your Confidential Information to Gain a Competitive Advantage?
Yes, you can. There is a law called the Trade Secrets Act. That act says a company’s confidential information, what must remain confidential, employees may not send it outside the company without authorization. They may not take it with them to a new company that they start to work for. Employees cannot use that for the employee’s own benefit, like if the employee starts a business. So, absolutely confidential information in the company is protected by the Trade Secrets Act, and it is a severe violation to move that data outside the company and use it in any competitive manner.
How Can You Ensure That Your Employment Contracts Are Compliant with State and Federal Employment Laws?
Quite simply, this is a tough issue. You need to work with an attorney. Every state is different. You can’t rely on a lot of the information that is online, and there are states like Delaware that generally enforce noncompete agreements. There are states like California that generally do not enforce noncompete agreements. And then there are all the other states that, for the most part, are somewhere in between. Sometimes they are enforceable, sometimes, they are not, and it depends very much on the terms and clauses in those agreements. So unfortunately, whether an employment contract is enforceable is an issue where you should consult with a business attorney.
Can You Obtain a Court Order to Prevent a Former Employee from Sharing Your Confidential Information with a Competitor?
You certainly can. How do you do it? You file a lawsuit, file a motion for a temporary injunction or temporary restraining order, and you base it on the Trade Secrets Act. This isn’t the kind of thing you can do yourself, but this is the kind of thing where you can go talk to a business litigation attorney, share with them what has happened, and they can get that case filed right away. Often, you can get a decision from a judge within a few days, or at least a couple of weeks, depending on what emergency hearing options are available in your state and your court.
What Legal Options Are Available If a Competitor Is Using False or Misleading Advertising to Damage Your Business Reputation?
Usually, what you do is send a cease and desist letter. Often, it is written by an attorney, and if they continue to do it, you file a case in court. It is a lawsuit. And for them to use false or misleading information is usually considered defamation. Defamation is illegal in every state in the United States. So when somebody uses false information or false statements of fact about you in a way that harms your reputation, generally, that is considered defamation, and you have a right to recover damages.
In Minnesota and many states, if it is in the business context, damages are assumed. In other words, if your professional or business reputation is damaged, you may not be able to ever figure out exactly how much that cost you because there is just the rumor mill got going, and your reputation is forever hurt to some extent, which is why damages are assumed in the business context.
What Legal Protections Are Available If a Competitor Is Engaging in Price Discrimination or Engaging in Predatory Pricing Practices?
Generally, you can take them to court. You can sue them. You can seek an injunction to order them to stop those illegal practices, and you can look at recovering damages. Another option might be to report it to the attorney general or some other department in your state to go after and conduct an investigation and prosecute those as crimes.
Can You Obtain a Court Order to Prevent a Competitor from Using Your Company Name or Logo in a Way That Could Cause Confusion or Harm Your Business Reputation?
Generally, yes. If you are confusing people in the marketplace by using someone else’s logo or their name, that is generally considered trademark infringement. And if you are harming the reputation of someone else, especially a major brand, even if it is not trademark infringement, it might be trademark dilution.
For example, let’s say that you start a company called Mercedes Hamburgers. Now, the Mercedes car company doesn’t make hamburgers, to my knowledge, and so you might be able to argue that it is not trademark infringement because they are not using the Mercedes brand name in the hamburger industry. But there is another legal doctrine, which I referenced called Trademark Dilution. Basically, you may be giving the Mercedes brand a less than high-quality reputation by using the Mercedes brand as it relates to your hamburgers, and so Mercedes could go after you for both trademark dilution and probably trademark infringement as well.
Conclusion
All right. So what we have talked about today is a lot of the value in your company is in your trade secrets, your confidential information, your databases, and your employees need to have access to this. So the way to protect yourself from all that internal intellectual property protection is through a non-solicitation agreement, a noncompete agreement, and a confidentiality agreement with your employees. But if you don’t have that in place, you can at least rely on the Trade Secrets Act, which does require employees to keep confidential information that you have reasonably kept confidential within your company. In other words, even if employees have not signed a noncompete or a non-solicitation agreement, it is improper for them to take your confidential information out of your company and then use it in the marketplace with a competitor or in their own business.
We have also talked about patent, trademark, and copyright. These are important areas of law where generally, to protect your rights; you need to register them. Patent, that is especially important because that is the only way to protect it. But if you don’t register a trademark or copyright right away, you still can get some common law protection even without that registration.
The purpose of this video series is to help you spot issues to discuss with your attorney to avoid risk and empower you and your business. If you know friends or other business owners who you think might benefit from these educational videos, feel free to encourage them to subscribe. You can do that at aaronhall.com/free/. If people go to aaronhall.com/free, that is where they can subscribe and get all these educational videos at no cost.