Thursday, May 22, 2008

Non-compete is based on customers, not location.

While worker non-competes have are generally construed against the employer, the standard of enforceability in the sale of a business in more liberally interpreted in favor of the party seeking to enforce, as it is focused on whether the restriction is reasonable to protect the goodwill of the business that was sold.

When selling his optometry business, Jay Peterson agreed not to “participate, compete or be engaged in the business of optical goods . . . within a five-mile radius of . . ." the location of his former business. After a dispute arose concerning the terms of the sale, Peterson opened a new practice ten miles away, which would have been fine except for the fact that he then took out advertising in the newspaper located in his old town encouraging clients to come and see him at the new location. In February, the Minnesota Appellate court ruled that the Peterson could be prevented from placing those advertisements even though the business itself was outside of the designated geographic area. Interestingly, the court noted that while they felt a limited restriction was appropriate, it should not be seen as placing a general ban on advertising that may have incidental exposure to the geographic area. In relevant part the court noted -

. . .the Court will not restrain publications with large circulation areas that happen to enter the five mile area (e.g. Minneapolis Star and Tribune). We agree with the district court's reasoning. Advertising in the Yellow Pages and the Internet, which have large circulation areas that only incidentally enter the restricted geographic areas, therefore, would not be prohibited by the non-compete agreement. Rather, the prohibition is limited to advertisements "specifically targeted" at persons in the restricted geographic areas.


Sealock v. Petersen, No. A06-2479 (Minn. App. 2/5/2008) (Minn. App., 2008).

This case provides a nice illustration of how you should look at the intent of the agreement to not solicit customers, rather than trying to circumvent the intent based on the literal geography of the agreement. However, in this age of mass circulation, this decision highlights a distinction that the court is willing to make between specifically targeted marketing efforts and marketing nets cast by much broader means.

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