Noncompete Agreements In North Dakota: Legislative Update

Previously, we wrote about answers to common questions about non-competes in North Dakota.

In 2019, the North Dakota State Legislature amended Section 9-08-06 through House Bill 1351. Here are the changes (underlines show additions, and strikethroughs show deletions):

9-08-06. In restraint of business void – Exceptions. Every A contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except:

1. One who A person that sells the goodwill of a business and the person’s partners, members, or shareholders may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or a part of either reasonable geographic area and for a reasonable length of time, so long as if the buyer or any person deriving title to the goodwill from the buyer carries on a like business therein in that area.
2. Partners, members, or shareholders, upon or in anticipation of a dissolution of the partnership, limited liability company, or corporation; upon or in anticipation of dissociation of a partner or member; or as part of an agreement addressing the dissociation or sale of a partner, member, or shareholder’s ownership interest, may agree that all or any number of them will not carry on a similar business within the same city a reasonable geographic area where the partnership, limited liability company, or corporation business has been transacted, or within a specified part thereof of the area.

Several changes were style changes and did not alter the meaning of the statute. For example, the Legislature continues to update the language in the Century Code across the board to address changes to common usage. Not many people use “thereof” anymore.

Several changes were made to match how the North Dakota Supreme Court was already interpreting the statute. For example, the Supreme Court has already applied the restrictions in Section 9-08-06 to corporations, even though the language does not specifically address corporations. House Bill 1351 now makes it clear that it applies to corporations and limited liability companies.

The most important changes are to the restrictions in area and time. Previously, Section 9-08-06 was limited to “a specified county, city, or part of either.” Now, it’s limited to a “reasonable geographic area.” House Bill 1351 also restricts Section 9-08-06 for a “reasonable length of time.” Likely, the “reasonableness” of each will depend upon the type of business sold. There’s no shortage of noncompete agreement precedent from which to draw upon from other states which use a similar type of standard.

If you have any questions regarding non-compete agreements in North Dakota, give us a call at 701-297-2890 or email us below.