Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Such agreements are also used when a business is being sold or a partnership is being dissolved.  Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained.  In general, courts decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.

The Law In North Dakota

North Dakota law prohibits any contract “by which anyone is restrained from exercising a lawful profession, trade, or business of any kind” between employers and employees.  The statute provides exceptions in the case of the sale of a business or dissolution of a partnership.

Reasonableness in Time and Geographic Scope

Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of work or line of business being restricted. If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former owner or partner’s ability to start up a new business.

Examples of non-compete agreements that North Dakota courts have found to be reasonable in the sale of business or dissolution of a partnership context includes:

• A 2-year restriction against a former shareholder’s ability to compete in the highway landscaping business from physically doing work within one county on federal highway projects funded by the Federal Highway Trust.  The court modified the original statewide geographic restriction.
• A 5-year restriction against the seller of an Italian restaurant from selling Italian-type foods within the limits of one city.  Originally the agreement specified a 50-mile radius of the city.

The courts have found the following restrictive covenants unreasonable:

• A restriction against an insurance agent from accepting or writing any policy that replaced a policy written by the former employer insurance agency because it would constitute a restraint of trade.
• A 1-year, 25-mile restriction against an insurance agent which imposed a penalty for competition, overruling an earlier case where such a penalty had been allowed.