It was one of those rankings from one of the names people like to brag about: In an article posted Friday on the Harvard Business Review’s website, Minnesota was called the second-friendliest state toward innovation.
The ranking was based on something called an RQ score, which measures the effectiveness of private R&D investments. Companies in California saw the greatest return for every dollar they spent on research and development, but companies in Minnesota were close behind.
While no one questioned the data or the significance of the ranking, a small squabble emerged over the author’s conclusion about why California and Minnesota are such good places for innovators.
Anne Marie Knott, a professor at the Olin Business School at Washington University in St. Louis, wrote, “Both states have legislation restricting the enforcement of noncompete agreements.”
Trouble is, Minnesota’s restrictions on noncompete agreements, which are deals created by companies to prevent employees from taking secrets to competitors, have emerged through years of court rulings rather than action by state lawmakers.
As well, Minnesota courts have tended to allow companies to enforce noncompete agreements within reason, depending largely on the importance of the person to a business and the length of the restriction on the person.
“Minnesota has no statute that has ever been adopted that restricts noncompete agreements. It’s a completely court-driven matter here,” said Bill Pentelovitch, partner at Maslon Edelman Borman & Brand law firm in Minneapolis.
In an interview, Knott said she was looking for something that distinguished the two states and made them leading environments for innovation. She noted both have diverse sets of industries but differ greatly in geography and culture.
She acknowledged the error in referring to legislation but said, “It’s still true that the case law is such that Minnesota does not enforce noncompetes. This was the only comparison that I could draw between Minnesota and California, which are not alike at all.”
California state law forbids companies from asking employees to sign noncompete deals in nearly every circumstance.
Pentelovitch, who wrote the chapter on noncompete agreements in the Minnesota Business Torts Deskbook, called Minnesota average in its approach to these agreements and doesn’t think that would distinguish the state to corporate leaders and innovative entrepreneurs.
“The rule in Minnesota is pretty similar to most other states, and that is old English common law,” Pentelovitch said. “There are only two states that have laws that are very restrictive of noncompetes and that’s North Dakota and California.”
Through the years, Minnesota courts have narrowly defined the restrictions made on employees who leave a company. The courts have a history of enforcing these agreements in cases where it protects a legitimate business interest or trade secrets, protects the employer’s investment in specialized training of the individual, and is “reasonable” in the geographic and time restrictions.
“The vast majority of these are very high-level scientists or executives,” Pentelovitch said, adding that the courts will generally enforce an agreement restricting an employee from going to a competitor if it’s less than a year. If it’s more than two years, he said, it really comes down to the individual facts in the case.
A bill was introduced during the 2013 Minnesota legislative session to give employees more power and weaken noncompete agreements. The bill was killed by members of both parties over concerns it would push companies out of the state.