Are Non-Compete Agreements Enforceable in North Dakota?
Explore North Dakota's unique legal landscape regarding non-compete clauses and discover effective alternatives for protecting business interests
every industry needs a leader
•
empower the leader in you
•
every industry needs a leader • empower the leader in you •
In the United States, the enforceability of non-compete agreements varies significantly by state, with some states adopting a much more restrictive stance than others. North Dakota is one such state, known for its strong public policy against such agreements.
General Rule: Non-Compete Agreements are Void
North Dakota Century Code § 9-08-06 broadly declares that "every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind is to that extent void." This statute establishes a clear presumption against the enforceability of non-compete agreements in the state. The North Dakota Supreme Court has consistently upheld this principle, emphasizing the state's public policy favoring free competition and the right of individuals to pursue their chosen livelihoods.
This means that, in most employment contexts, a non-compete clause attempting to prevent an employee from working for a competitor after leaving a company will likely be deemed unenforceable. This strong stance aims to protect worker mobility and prevent employers from unduly restricting an individual's ability to earn a living.
Limited Exceptions to the Rule
While the general rule in North Dakota is one of unenforceability, there are two primary statutory exceptions where non-compete agreements may be valid:
Sale of Goodwill of a Business: When a person sells the goodwill of a business, they may agree with the buyer to refrain from carrying on a similar business within a specified geographic area (county, city, or part thereof) for a reasonable amount of time, provided the buyer continues to carry on a like business in that area. This exception recognizes the legitimate interest of a buyer in protecting the value of the business they've acquired, which includes its customer base and reputation.
Dissolution of a Partnership: Partners dissolving a partnership may agree that one or more of them will not carry on a similar business within the same city where the partnership business was transacted. This allows for a structured winding down of the partnership and prevents immediate competition among former partners.
For these exceptions to apply, the non-compete clause must be "reasonable" in terms of both geographic scope and duration. While North Dakota case law doesn't provide precise definitions for "reasonable," courts will assess these factors on a case-by-case basis, considering the specific circumstances of the agreement and the interests it seeks to protect. For instance, a five-year duration and a 60-mile radius have been upheld in certain business sales contexts.
Beyond Non-Competes: Alternative Protections for Employers
Given North Dakota's stringent view on non-compete agreements, employers in the state often look to alternative methods to protect their legitimate business interests. These include:
Non-Solicitation Agreements: These agreements prevent former employees from soliciting the employer's customers or employees for a specified period. While North Dakota courts have historically treated non-solicitation provisions similarly to non-competes under § 9-08-06, their enforceability often hinges on the specific language and whether they unduly restrain a profession.
Confidentiality and Non-Disclosure Agreements (NDAs): NDAs are generally enforceable in North Dakota to protect trade secrets and proprietary information. These agreements prevent employees from disclosing confidential company information, regardless of whether they go to work for a competitor.
Trade Secret Protection: North Dakota's Uniform Trade Secrets Act provides legal recourse for employers whose trade secrets are misappropriated. This statutory protection can be a powerful tool for safeguarding sensitive business information.
Compensation Structures and Incentives: Employers can design compensation plans, such as deferred compensation or profit-sharing, to incentivize key employees to remain with the company and discourage them from leaving to compete.
In conclusion, North Dakota stands out among U.S. states for its strong policy against non-compete agreements in employment contracts. While limited exceptions exist for the sale of a business and partnership dissolution, employers must carefully consider these narrow allowances and often rely on other legal mechanisms to safeguard their business interests.
Information published to or by The Industry Leader will never constitute legal, financial or business advice of any kind, nor should it ever be misconstrued or relied on as such. For individualized support for yourself or your business, we strongly encourage you to seek appropriate counsel.
