Enforceability of Non-Compete Agreements in North Dakota: What Employers Need to Know

Requiring a newly hired petroleum engineer in Williston or a senior software architect in Fargo to sign a standard post-employment non-compete clause creates immediate legal exposure rather than business protection. Unlike neighboring states that permit reasonable time and geographic restrictions on former staff, North Dakota maintains one of the oldest and most absolute statutory prohibitions against employment restraints in the United States. Companies that rely on multi-state employment templates frequently discover during litigation that their restrictive covenants are completely void as a matter of public policy.

Whether your enterprise operates in Cass County, Burleigh County, Grand Forks County, or Williams County, protecting proprietary data and client relationships requires a specialized legal strategy. Rather than attempting to block departing workers from earning a living in their chosen field, employers must utilize narrow statutory exemptions, trade secret laws, and carefully structured non-solicitation provisions to safeguard their market position.

Understanding N.D. Cent. Code § 9-08-06 and North Dakota's Strict Ban

Rooted in the original Dakota Territory Civil Code of 1865, N.D. Cent. Code § 9-08-06 states that every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void. For standard W-2 employees who do not hold an ownership stake in the enterprise, there is no such thing as a reasonable post-employment non-compete agreement in North Dakota. Even if an employer limits the restriction to three months and a five-mile radius around a single office in Bismarck or Minot, a North Dakota court will refuse to enforce the covenant.

Out-of-state corporations frequently attempt to bypass this statutory ban by inserting foreign choice-of-law and forum-selection clauses into their onboarding contracts. However, in the landmark decision Osborne v. Brown & Saenger, Inc., 904 N.W.2d 34 (ND Supreme Court 2017), the state's highest court ruled in favor of a Fargo sales representative and invalidated a contract provision requiring disputes to be litigated under South Dakota law in South Dakota courts. The court held that employers cannot use out-of-state venue clauses to enforce a non-compete against a North Dakota resident working inside the state.

Similarly, employers cannot disguise a non-compete as a financial penalty or commission forfeiture. In Werlinger v. Mutual Service Cas. Ins. Co., 496 N.W.2d 26 (ND Supreme Court 1993), the court ruled in favor of a former insurance agent, holding that a contract clause forfeiting earned termination benefits if the worker competed with the company constituted an unlawful restraint of trade under N.D. Cent. Code § 9-08-06.

Statutory Exemptions and Legal Workarounds in North Dakota

While ordinary employment non-competes are dead on arrival, the legislature refined N.D. Cent. Code § 9-08-06 to clarify two specific ownership-based exemptions and left room for narrowly tailored intellectual property protections.

The Sale of Business Goodwill Exception

Under N.D. Cent. Code § 9-08-06(1), a person who sells the goodwill of a business-along with the seller's partners, members, or shareholders-may legally agree with the buyer to refrain from carrying on a similar business within a reasonable geographic area and for a reasonable length of time. This exception only remains valid so long as the buyer, or someone deriving title to the goodwill from the buyer, actively carries on a like business in that designated area. To invoke this exception for a key executive, the individual must hold bona fide equity and sell the goodwill of that ownership interest as part of a genuine transaction.

Dissolution or Dissociation of Partnerships, LLCs, and Corporations

Pursuant to N.D. Cent. Code § 9-08-06(2), partners, LLC members, or corporate shareholders may sign an enforceable non-compete upon or in anticipation of the dissolution of the entity, or as part of an agreement addressing the dissociation or buyout of an owner's equity stake. The departing owner may agree not to carry on a similar business within a reasonable geographic area where the partnership, LLC, or corporation has transacted business.

Customer Non-Solicitation vs. Employee Non-Raiding Clauses

Because North Dakota courts interpret N.D. Cent. Code § 9-08-06 broadly, post-employment customer non-solicitation agreements generally fail when applied to non-equity employees. In Warner and Company v. Solberg, 634 N.W.2d 65 (ND Supreme Court 2001), the court ruled in favor of a departing employee and struck down a clause barring the solicitation of the employer's clients, holding that the statute contains no implicit exception for anti-solicitation covenants that restrain an employee's business. However, narrow restrictions involving independent contractors or anti-raiding clauses barring the solicitation of co-workers have occasionally survived judicial scrutiny, as seen in Kovarik v. American Family Insurance Group, 108 F.3d 962 (US Court of Appeals 8th Cir. 1997), provided they do not prevent the individual from practicing their trade.

Industry-Specific Strategies: Tech Startups vs. Oilfield Service Companies

Different sectors across North Dakota face distinct competitive threats when top talent departs. Because a blanket non-compete is unavailable, businesses must tailor their defensive contracts to the specific assets they need to protect.

Protecting IP in Fargo and Grand Forks Tech Startups

Technology, autonomous systems, and AgTech startups clustered in Fargo and Grand Forks rely heavily on source code, algorithms, and product roadmaps. Instead of non-competes, tech employers typically deploy robust Non-Disclosure Agreements (NDAs) backed by the N.D. Cent. Code § 47-25.1-01 and the federal 18 U.S.C. § 1836. Startups also utilize Proprietary Information and Inventions Assignment Agreements (PIIAAs) to ensure all code and patents developed during employment belong exclusively to the company, alongside equity redemption agreements tied to N.D. Cent. Code § 9-08-06(2) for co-founders holding vested shares.

Securing Operations in Williston and Bakken Oilfield Service Companies

Oilfield service firms operating in Williston, Dickinson, and Watford City face constant poaching of skilled directional drillers, safety supervisors, and field sales engineers. To retain key personnel without violating state law, energy companies frequently utilize retention bonuses with time-vested payout schedules, training repayment agreement provisions (TRAPs) for specialized third-party certifications, and strict confidentiality agreements covering proprietary geological data, well-service pricing matrices, and master service agreement (MSA) bid sheets.

Step-by-Step Process in North Dakota for Auditing and Updating Employee Handbooks

Whether your company is headquartered in Fargo, Bismarck, Grand Forks, or Minot, leaving unlawful non-compete language in an employee handbook creates unnecessary litigation risk and can undermine the credibility of your entire policy manual.

Step 1: Audit Existing Contracts and Employee Handbooks

Gather all onboarding packets, executive employment agreements, equity incentive plans, and employee handbooks. Flag any provision that restricts post-employment competition, penalizes working for a competitor, bans soliciting clients after termination, or mandates out-of-state venue and choice of law for North Dakota employees.

Step 2: Sever Unlawful Restraints of Trade

Because N.D. Cent. Code § 9-08-06 voids contracts 'to that extent,' a properly drafted severability clause allows valid portions of an employment agreement to survive while excising the illegal restraint. Remove all post-termination non-compete and customer non-solicitation clauses from standard employee handbooks and non-owner employment contracts, while preserving legitimate duty-of-loyalty restrictions that apply strictly during active employment under N.D. Cent. Code § 34-02-07.

Step 3: Draft Compliant NDAs and Trade Secret Policies

Replace overbroad restrictive covenants with specific confidentiality definitions that identify trade secrets under N.D. Cent. Code § 47-25.1-01(4). Ensure your NDA includes the mandatory federal whistleblower immunity notice required by 18 U.S.C. § 1833(b) so your business preserves its right to seek exemplary damages and attorney fees in federal trade secret litigation.

Step 4: Issue Written Rescission Notices for Active Non-Competes

Distribute a formal written addendum to current employees and recently departed staff clarifying that any prior post-employment non-compete provision in their handbook or offer letter is rescinded and will not be enforced. Proactive rescission prevents former workers from filing pre-emptive declaratory judgment lawsuits against your company.

Step 5: Obtain Signed Handbook Acknowledgments

Roll out the updated North Dakota employee handbook and require all personnel to sign an updated acknowledgment form. Verify that the acknowledgment explicitly preserves at-will employment status under N.D. Cent. Code § 34-03-01 while confirming receipt of the updated trade secret and conflict-of-interest policies.

Step 6: Litigate or Defend Declaratory Actions in District Court

If a dispute arises over an ownership buyout covenant or trade secret misappropriation, the action is filed in the state District Court where the defendant resides or where the breach occurred, such as Cass County District Court, Fargo, Burleigh County District Court, Bismarck, Grand Forks County District Court, Grand Forks, Ward County District Court, Minot, or Williams County District Court, Williston. Plaintiffs initiate state litigation using N.D. R. Civ. P. 4 alongside a verified complaint, or file federal trade secret claims in the U.S. District Court for the District of North Dakota, Fargo or the U.S. District Court for the District of North Dakota, Bismarck.

How Much Does it Cost in North Dakota?

Auditing your restrictive covenants proactively is significantly less expensive than defending a declaratory judgment action or litigating a contested partnership dissolution in court. Employers should budget for the following expenses:

• State District Court Filing Fees: Filing a civil complaint for declaratory relief or an injunction in a North Dakota District Court costs $160 under N.D. Cent. Code § 27-05.2-03(1)(a), and filing a formal Answer costs $100 under N.D. Cent. Code § 27-05.2-03(1)(c).
• Federal Court Filing Fees: Initiating a civil trade secret lawsuit under the Defend Trade Secrets Act in federal court requires a $405 filing fee pursuant to 28 U.S.C. § 1914(a).
• Service of Process Fees: County sheriff or private process server delivery of a summons and complaint typically costs between $35 and $85 per defendant.
• Contract & Handbook Audit Legal Fees: Hiring an experienced North Dakota business or employment attorney to audit your employee handbook, sever void clauses, and draft compliant NDAs or LLC buyout agreements typically ranges from $1,200 to $3,500 on a flat-fee basis, or $275 to $450 per hour.
• Trade Secret & Injunction Litigation Costs: Litigating a temporary restraining order (TRO) and preliminary injunction for trade secret theft or a contested business sale non-compete generally ranges from $10,000 to $35,000+ through the evidentiary hearing stage.

How Long Does the Process Take?

The legal timeline for updating outdated employee handbooks and resolving restrictive covenant disputes in North Dakota depends on whether you are conducting an internal compliance overhaul or responding to active litigation:

• Internal Handbook & Contract Overhaul (14 to 30 Days): A comprehensive legal review of existing employment contracts, drafting North Dakota-specific NDAs, and collecting signed rescission and acknowledgment forms from staff typically takes 2 to 4 weeks. Employers should implement these updates immediately upon discovering non-compliant language, as there is no grace period protecting void clauses from a declaratory challenge.
• Emergency Temporary Restraining Orders (2 to 14 Days): When an ex-employee steals trade secrets or a former business partner violates a valid N.D. Cent. Code § 9-08-06(2) dissolution covenant, a District Court judge can issue an emergency TRO within 48 to 72 hours, followed by a preliminary injunction hearing within 14 days under N.D. R. Civ. P. 65.
• Standard Declaratory Judgment Litigation (3 to 9 Months): Once served with a summons and complaint in North Dakota state court, a defendant has 21 days to serve an Answer under N.D. R. Civ. P. 12(a)(1)(A). Because the invalidity of an employee non-compete is a pure question of law, courts often resolve declaratory judgment motions via summary judgment within 3 to 9 months.

If your company needs to protect proprietary assets or structure an enforceable equity buyout agreement, you can browse our directory of vetted North Dakota employment and business lawyers to find local legal counsel in Fargo, Bismarck, Williston, or Grand Forks.

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