The material change doctrine is a legal theory that developed in Massachusetts. It originated in the Massachusetts Supreme Judicial Court’s 1968 decision in F.A. Bartlett Tree Expert Co. v. Barrington, where the court found that far-reaching changes to an employee’s pay, territory, and position strongly suggested the parties had abandoned their old arrangement and entered a new relationship, and concluded that the original contract (and its noncompete) was no longer operative. (See footnote 1.) Under Massachusetts law, each time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship, a new restrictive covenant must be signed. (See footnote 2.)

The material change doctrine is a common-law rule. Massachusetts noncompete agreements entered into on or after October 1, 2018, are now governed by the Massachusetts Noncompetition Agreement Act, so the doctrine is no longer the sole framework for a modern Massachusetts noncompete, though courts continue to treat material change as a relevant consideration. (See footnote 3.)

Although there is not a material change rule in Minnesota, the determination will depend on the particular facts and whether the employer has a “legitimate business interest” in enforcing the noncompete.

Before you rely on that analysis, note a major change in Minnesota law. Effective July 1, 2023, Minnesota voided new noncompete agreements outright. Any covenant not to compete contained in a contract or agreement entered into on or after that date is void and unenforceable, regardless of how reasonable it is, subject only to narrow exceptions for a covenant agreed upon during the sale of a business or in anticipation of the dissolution of a business. (See footnote 4.) The ban reaches employees and independent contractors, it bars choice-of-law or forum clauses that would strip a Minnesota-based worker of these protections, and it does not cover nondisclosure, trade-secret, or nonsolicitation agreements, which remain governed by the reasonableness analysis described below. (See footnote 5.) The ban is prospective: it does not reach agreements signed before July 1, 2023. So the legitimate-business-interest framework that follows still controls noncompetes signed before July 1, 2023, and the categories of restrictive covenant the statute does not reach, but a Minnesota employee noncompete signed today is not enforceable merely because it is reasonable.

What is a “legitimate business interest?”

Although Minnesota courts do not favor noncompete covenants because they are partial restraints on trade (See footnote 6), for the agreements the 2023 ban does not reach, restrictive covenants are enforced to the extent reasonably necessary to protect legitimate business interests. (See footnote 7.) An analysis of the legitimate interests of the employer usually falls into three areas:

  1. the relationship between the employee and the employer’s customers (see footnote 8);
  2. confidential information in the possession of or known to the employee (see footnote 9); and
  3. specialized training obtained by employee from employer. (See footnote 10.)

Relationship between employee and employer’s customers:

In determining whether an employee is in a position to trade on the employer’s good will, Minnesota courts have looked at whether the employee developed a special relationship with the business’ customers. (See footnote 11.) For instance, where an employee was the primary contact between the employer and four major customers, worked closely with the customers, and considered them to be friends, the relationship was sufficiently close to give rise to a legitimate business interest in protecting itself. (See footnote 12.) Conversely, where evidence showed the employee did not develop any special relationships with customers, a three-year restrictive covenant was found to be not justified. (See footnote 13.)

Confidential information in the possession of an employee:

Minnesota courts have also found a legitimate interest in protecting trade secrets or confidential information. (See footnote 14.) The Minnesota Supreme Court defined confidential information as:

  1. protected matter not generally known or readily ascertainable;
  2. that provides a demonstrable competitive advantage;
  3. that was gained at the expense of the employer; and
  4. is such that the employer intended to keep confidential. (See footnote 15.)

Matters of general knowledge within the industry may not be classified as trade secrets or confidential information; (see footnote 16) and, the employer must show that it took reasonable efforts to maintain the secrecy of the information. (See footnote 17.)

Specialized training:

Courts applying Minnesota law have reasoned that an employer’s serious investment in training its employees should be considered an element of a protectable business interest. (See footnote 18.) Specialized training, not just training, is relevant to the determination. (See footnote 19.) The amount of time and financial investment required to train the employee can provide a measure of whether or not the training was specialized. Conversely, an employer is not entitled to protection where the employee received the same training during previous employment; what is protectable is the specialized training the employer itself invested in, not skills the employee already had or could acquire generally within the industry. (See footnote 20.)

[1] F.A. Bartlett Tree Expert Co. v. Barrington, 353 Mass. 585, 587-88 (1968); see also AFC Cable Sys. Inc. v. Clisham, 62 F. Supp. 2d 167 (D. Mass. 1999); Lycos, Inc. v. Jackson, 18 Mass. L. Rptr. 256, 2004 WL 2341335 (Mass. Super. Ct. Aug. 25, 2004).

[2] Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1 (1st Cir. 2009) (quoting Lycos, Inc. v. Jackson, 18 Mass. L. Rptr. 256, 2004 WL 2341335 (Mass. Super. Ct. Aug. 25, 2004)).

[3] Massachusetts Noncompetition Agreement Act, G.L. c. 149, § 24L (effective Oct. 1, 2018).

[4] Minn. Stat. § 181.988, subd. 2 (2023); 2023 Minn. Laws ch. 53, art. 6, § 1 (effective July 1, 2023, applicable to contracts and agreements entered into on or after that date).

[5] Minn. Stat. § 181.988, subds. 1, 3 (2023).

[6] Midwest Sports Mktg., Inc. v. Hillerich & Bradsby of Canada, Ltd., 552 N.W.2d 254, 265 (Minn. Ct. App. 1996).

[7] Cherne Industries, Inc. v. Grounds & Associates, Inc., 278 N.W.2d 81 (Minn. 1979); Walker Employment Service, Inc. v. Parkhurst, 300 Minn. 264, 219 N.W.2d 437 (1974); Eutectic Welding Alloys Corp. v. West, 281 Minn. 13, 160 N.W.2d 566 (1968); Bennett v. Storz Broadcasting Co., 270 Minn. 525, 134 N.W.2d 892 (1965).

[8] Millard v. Electronic Cable Specialists, 790 F. Supp. 857 (D. Minn. 1992).

[9] Minn. Mining & Mfg. Co. v. Kirkevold, 87 F.R.D. 324 (D. Minn. 1980).

[10] Eutectic Welding Alloys Corp. v. West, 281 Minn. 13, 160 N.W.2d 566 (1968).

[11] Klick v. Crosstown State Bank of Ham Lake, Inc., 372 N.W.2d 85, 88 (Minn. Ct. App. 1985).

[12] Webb Publ’g Co. v. Fosshage, 426 N.W.2d 445, 447-51 (Minn. Ct. App. 1988).

[13] Klick, 372 N.W.2d at 88.

[14] Cherne, 278 N.W.2d at 90.

[15] Id.

[16] Cherne, 278 N.W.2d at 90 (quoting Whitmyer Bros. v. Doyle, 58 N.J. 25, 33, 274 A.2d 577, 581 (1971)).

[17] Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 901-02 (Minn. 1983).

[18] IDS Life Ins. Co. v. SunAmerica, Inc., 958 F. Supp. 1258, 1274 (N.D. Ill. 1997) (applying Minnesota law), aff’d in part and vacated in part, 136 F.3d 537 (7th Cir. 1998).

[19] Eutectic Welding Alloys Corp. v. West, 281 Minn. 13, 160 N.W.2d 566 (1968).

[20] See Eutectic Welding Alloys Corp. v. West, 281 Minn. 13, 160 N.W.2d 566 (1968). Cf. Jim W. Miller Constr., Inc. v. Schaefer, 298 N.W.2d 455, 458-59 (Minn. 1980) (a noncompete protects only the employer’s business or good will, and an employee’s nonconfidential skills and knowledge acquired on the job cannot support it).