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North Dakota Law Banning Non-Compete Agreements Upheld

Running a nation-wide business here in the U.S. is almost as complicated as running an international business. With varying laws and restrictions between each city, county, and state, businesses need to make sure each of their locations is working in accordance with all the relevant business and labor laws governing that location.

But according to a recent lawsuit filed against Brown & Saenger, Inc., the South Dakota-based company allegedly tried to get around the need to abide by other states’ labor laws by specifying that all legal disputes were to be handled in South Dakota state court, under South Dakota law. The problem with that turned out to be North Dakota’s laws prohibiting non-compete and non-solicitation clauses in employment contracts.

The lawsuit involved a sales representative who worked for Brown & Saenger in their Fargo, North Dakota location and whose employment contract included both a non-compete agreement and a non-solicitation agreement in violation of North Dakota law. The contract also specified that it was to be held liable under South Dakota law, and in the event of a dispute over the contract, the parties would argue their cases in South Dakota court.

When the employee challenged this contract, the lawsuit they filed was argued in North Dakota court under North Dakota law. It reached the North Dakota Supreme Court, which maintained that forcing North Dakota residents to abide by laws in other states was a violation of the state’s labor laws. In its written opinion, the state supreme court insisted that no one who lives and works in North Dakota can be bound by a non-compete or non-solicitation agreement, even if their employer is based in another state.

North Dakota law does allow for non-compete and non-solicitation clauses to be included in contracts regarding the sale of a business or the dissolution of a partnership, but such clauses must be limited to a specific geographic area, such as a certain county, city or neighborhood.

What Brown & Saenger tried to do when it specified that the employment contract was to be enforced under South Dakota law is known as forum shopping. Rather than abiding by the laws of the state in which it was doing business, the company tried to pick and choose the laws that would apply to its business by forcing all its employees, regardless of where they lived and worked, to be bound by a contract that operated under South Dakota state laws.

Non-compete and non-solicitation agreements have been getting a lot of media attention lately as employee advocates continue to try to keep companies from restricting their workers’ employment opportunities. This attempted trick by Brown and Saenger is just the latest in a long string of examples of companies who have tried to expand their non-compete agreements beyond the limits of the law.

The latest decision by the North Dakota Supreme Court makes clear that the state’s ban on non-compete and non-solicitation agreements hold firm on all companies conducting business in the state, even if their headquarters are located in another state. The only exceptions to the rule are those laid out in the law, which allows specific provisions for those who have just bought a business or are dissolving a partnership, and even the circumstances for those allowances are limited.

Our Chicago non-compete agreement attorneys have defended high-level executives in a covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago Business. You can view that article by clicking here.

DiTommaso Lubin Austermuehle a firm of Chicago business dispute lawyers handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Evanston and Park Ridge have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results. We have successfully represented a number of doctors in non-compete, partnership, and other business disputes.  We understand the complexities of physician partnership and non-compete agreements.

DiTommaso Lubin Austermuehle a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Our firm has also handled many shareholders and LLC disputes between owners of closely held corporations, and LLCs.

Based in Oakbrook Terrace and downtown Chicago, our Wheaton and Waukegan non-compete agreement and business dispute lawyers take cases from Hinsdale and Downers Grove and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 1-877-990-4990 today.

Vincent L. DiTommaso

DiTommaso Lubin Austermuehle’s Oak Brook Lombard and Elmhurst non-compete agreement litigation attorneys have more than three decades of experience helping clients unravel the complexities of Illinois and out-of-state non-compete and trade secret theft laws. Our Chicago business dispute attorneys also represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners, shareholders, and LLC members as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Barrington and Kenilworth, we serve clients throughout Illinois and the Midwest.