2019 Update

What Is A Noncompete Agreement?

A non-compete agreement is a contract restricting a party’s ability to compete with your business. It is also known as a covenant not to compete, a non-competition agreement, or a non-compete.

Is A Noncompete Agreement Enforceable In North Dakota?

Yes, but only under limited circumstances. Section 9-08-06 of the North Dakota Century Code voids all non-competes that are not connected to the sale or dissolution of a business. This means all non-competes in employment agreements (without any ownership) are void.

What Is A Non-Solicitation Agreement?

A nonsolicitation agreement is a contract generally restricting a party’s ability to solicit business from a certain set of clients or customers. Nonsolicitation agreements are commonly used with or as an alternative to, non-compete agreements.

Is A Non-Solicitation Agreement Enforceable In North Dakota?

Yes, but (again) only under limited circumstances. The North Dakota Supreme Court held a nonsolicitation agreement is a restriction on a profession, trade, or business, so it is also subject to Section 9-08-06. A nonsolicitation agreement is void if it is not connected to a sale or dissolution of a business.

How Far Can A Noncompete Or Non-Solicitation Agreement Extend?

If one of the two exceptions in Section 9-08-06 are met, a noncompete or nonsolicitation may extend to “within a specified county, city, or a part of either.” The North Dakota Supreme Court upheld enforcement of a noncompete extending a “radius of 60 miles.”

How Long Can Noncompete Or Non-Solicitation Agreements Last?

A “reasonable” amount of time. The Supreme Court upheld a trial court’s decision that five years was reasonable for a pizza business. It also upheld a trial court’s decision that five years was reasonable for an insurance business. A Court’s decision will hinge on the type of business being restrained.

How Can I Protect My Business?

Many businesses are justifiably concerned they are “training their future competition.” So, how can you protect your business in North Dakota? You have several options. First, make sure you clearly define that your business owns all information and work product. You can do this through an employment contract or an employee handbook. Second, make sure your information and work product are protected. You can do this by making sure it’s protected as a trade secret under North Dakota law. You may also be able to protect the use and disclosure of information and work product through a nondisclosure agreement (note the Supreme Court has not ruled whether a nondisclosure agreement falls under Section 9-08-06). Third, you can structure your compensation to disincentivize leaving to compete. A common way of doing this is through deferred compensation agreements. You can also offer profit sharing or ownership to key employees to incentivize them to stay. You have many options related to compensation structures.

If you have any questions about North Dakota noncompete or nonsolicitation agreements, please contact the Business Law Team at SW&L Attorneys.

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