b'Is the Future Uncertain for Non-Compete Agreements? AlertsIn November 2019, Minnesota Attorney General Keith Ellisonrestricting enforcement of non-compete agreements. In recent1 Changes to Bankruptcy Law Affect Farmers and Small Businesses joined officials from about 20 other states in requesting that theyears, at least six states have moved in this direction.The Family Farmer Relief Act of 2019 revises the definition of family farmer to include farmers whose aggregate debts Federal Trade Commission (FTC) adopt a new rule that woulddo not exceed $10,000,000double the previous debt limit.render non-compete agreements illegal for low-wage workersChallenges in Enforcing Non-Compete and where they were not specifically negotiated. Agreements Under Minnesota Law The Small Business Reorganization Act of 2019 (SBRA), effective February 19, 2020, simplifies the reorganization process While neither the FTC nor Minnesotas Legislature has expresslyfor certain small businesses. Procedures and fees required in Chapter 11 bankruptcies, including the appointment of What Is a Non-Compete Agreement? committees of unsecured creditors, the filing of a disclosure statement in connection with a debtors proposal of a plan forbidden non-compete agreements, recent court decisions in Minnesota illustrate the challenges that an employer can face inof reorganization, and the payment of U.S. Trustee quarterly fees, are eliminated under the newly created subchapter of A non-compete agreement is a contract in which an employeeseeking to enforce these types of contracts. Chapter 11 of the Bankruptcy Code. The objective of these changes is to lower the costs of bankruptcy for small businesses agrees that he/she will not compete in specified ways with theand increase the efficiency of the bankruptcy process.employer while employed and for a period of time after theIn one case, the court refused to enforce a non-compete employment relationship ends. agreement signed by an employee on his second dayUnder the SBRA, a small business debtor is required to file its plan of reorganization within 90 days of the date it files on the job because the employer had not mentionedits bankruptcy petition. The new law also changes the substantive requirements of a plan with respect to treatment of the restriction to the employee before he acceptedsecured creditors and all classes of creditors roles in supporting a plan of reorganization.The request by many states for a rule restricting non-competethe job offer and the employer failed to provide theNotably, the SBRA also raises the bar for Chapter 11 trustees seeking to bring preference-payment recovery actions agreements represented a reaction to perceived employer overuseemployee with independent consideration for signingagainst creditors. Specifically, the SBRA requires claims of less than $25,000 to be filed in the district where the defendant of non-compete agreements, such as with low-wage employees.the restriction. resides and requires the trustee to conduct due diligence into a would-be defendants likely affirmative defenses to a An example is the Jimmy Johns sandwich chain, which drewpreference claim.negative publicity over its practice of asking its employees to signAnother court denied an employers request for an non-compete agreements.injunction to enforce a non-compete covenant because As of September 1, 2020, the FTC has yet to release notice ofof a lack of evidence that the employer had a legitimate2 Moss & Barnett\'s COVID-19 Resource Pageany proposedrule restricting the enforceability of non-competeinterest that was genuinely threatened by its former employees work for a competitor. The court wasThe COVID-19 virus is having significant and rapidly changing legal implications for both businesses and individuals. agreements. unconvinced that there was a genuine threat simplyMoss & Barnett has created a resource page to provide information that may be helpful in your decision-making. Visit Efforts to Modify Existing Non-Competebecause the employee worked in sales jobs withLawMoss.com/news-moss-and-barnett-covid-19-resource-page to learn more. We know that this is a difficult and stressful both companies. time for everyone, and new challenges will emerge as this situation continues to evolve. Together, we are well-equipped Law in Minnesota to navigate these challenges and overcome these trying times.Another effort to limit the enforceability of non-competeIn another recent decision, the court denied an agreements recently played out at the Minnesota Legislature. DFLemployers attempt to enforce a non-compete agreement legislators proposed a bill to limit Minnesota non-compete lawthat was drafted to apply to prospective customers of3 The Setting Every Community Up for Retirement Enhancement (SECURE) Actby prohibiting the use of these agreements for physicians. Whilethe employer. The prospective nature of the relationships the bill progressed in the DFL-majority House, it did not receive ain question caused the court to conclude that there wasOn December 20, 2019, The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted into law. hearing in the GOP-controlled Senate, and has not become law.an insufficient threat of harm to justify enforcing thatThe SECURE Act changed several retirement provisions, most notably:type of restriction.Varying Approaches Among the States For an IRA owner, the new required minimum distribution age is 72 (under prior law, it was age 70 ).States have adopted widely-differing approaches to enforcingIn a ruling in which the court did enforce a customerFunds held in an IRA must now be distributed to a designated beneficiary within 10 years after the IRA owners death. non-compete agreements. Some states, such as California andnon-solicitation provision through a temporary injunction,Exceptions apply if the beneficiary is a surviving spouse, a minor child, or a disabled or chronically ill beneficiary. North Dakota, prohibit non-compete agreements or strictlythe court also held that the former employee subject toThe new law limits the use of so-called stretch IRAsa financial strategy that allowed the designated beneficiary to limit their enforcement. In other states, including Minnesota,the injunction was entitled to know the names of allreceive IRA distributions over his/her lifetime.courts will often enforce non-compete agreements if they areoff-limits customers, information which the former reasonable in scope and duration and necessary to protect aemployer had been reluctant to provide.Individuals may now contribute to an IRA after age 70 .legitimate interest of the original employer that seeks to enforce22 the restriction. Broadly, the trend across the country is toward"Non-Compete Agreements" Continued on Page 5 If you would like assistance assuring best practices in these areas, please contact your attorney at Moss & Barnett. 3'