Cameron Miranda
In Minnesota, the assignability of contracts is a complex issue that depends on the specific circumstances and the type of contract involved. Generally, assignments are valid unless the contract explicitly prohibits them. An assignment occurs when one party transfers their rights or obligations under a contract to another party, which can significantly alter the contract's dynamics. Minnesota law allows for the assignment of rights in lawsuits or disputes, and courts have upheld the assignability of certain types of contracts, such as commercial contracts. However, in the case of non-compete agreements, Minnesota courts have ruled that assignability depends on the language of the contract, and some courts advocate for the inclusion of an express assignment clause. Understanding the legal implications of assignments is crucial, and parties should exercise due diligence when considering substitutions in their contracts.
| Characteristics | Values |
|---|---|
| Nature of assignment | A party transfers rights or obligations in a contract to another party. |
| Assignability of non-compete agreements | Depends on the language of the contract. |
| Assignment analysis | Triggered when there is a conveyance of the non-compete contract. |
| Assignment of rights | Allowed unless the contract has clear language preventing it. |
| Assignment risks | Affects the dynamic of how the contract is performed. |
| Assignment of "chose in action" | Allowed in Minnesota. |
| Assignment of rights and duties | An assignment of "the contract" is an assignment of rights and a delegation of performance of duties. |
| Assignment of damages | Allowed despite an agreement otherwise. |
| Assignment of security interest | Not a transfer that materially changes the duty or risk imposed on the buyer. |
| Contractual parties | Should be identified by legal name, home state, and type of entity. |
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What You'll Learn
Non-compete agreements
Minnesota has recently become the first state in over a century to ban the enforcement of non-compete agreements. This new law, which came into effect on July 1, 2023, prohibits employers from enforcing non-compete contracts signed on or after this date. Non-compete agreements, or covenants not to compete, are contracts that restrict employees from taking similar positions with new employers or starting competing businesses.
Prior to this ban, there was confusion around the assignability of non-compete agreements under Minnesota law. Some sources suggested that the assignability depended on the language of the contract and whether it expressly contemplated assignment. In the case of Metro Networks Communs., Ltd. P’ship v. Zavodnick, a Minnesota district court considered the enforceability of an employee's non-compete agreement that was assigned to another entity as part of corporate restructuring. The court found that the non-compete agreement was entered into with one entity, Metro Traffic Control, Inc., even though the named plaintiff was a related entity, Metro Networks Communications, Limited Partnership.
Another case, Saliterman, concluded that a "covenant not to compete in an employment agreement is assignable ancillary to the sale of a business to protect the goodwill of that business." However, the Inter-Tel court provided a narrower interpretation of Saliterman, stating that the assignability in that case relied largely on the contract's explicit mention of assignment. The authors of the article advocating for the "personal confidence" view of non-compete covenants agreed with this interpretation, arguing that a non-compete agreement generally cannot be assigned without the consent of the parties unless it includes an express assignment clause.
It is important to note that Minnesota's new law does not apply retroactively, meaning that non-compete agreements signed before July 1, 2023, are still valid. Additionally, there are certain exceptions to the ban, including non-competition provisions based on the sale or anticipated dissolution of a business. In these cases, the law allows for temporary and geographically restricted covenants not to compete.
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Contractual rights and obligations
In Minnesota, contractual rights and obligations can generally be assigned to another party, unless the contract includes clear language preventing such assignments. An assignment occurs when one party transfers their rights or obligations under a contract to another entity, which can significantly alter the contract's dynamics. It is important to note that assignments may involve rights, obligations, or a combination of both. Rights refer to the benefits that a party receives from the contract. When rights are assigned, the assignee also takes on any disputes and lawsuits associated with the original contract.
The Minnesota Statutes, particularly Section 336.2-210, outline specific provisions regarding the assignment of contractual rights and obligations. According to this statute, an assignment of "the contract" or "all my rights under the contract" indicates a delegation of the assignor's duties to the assignee. The assignee's acceptance of this delegation constitutes a promise to perform those duties, which can be enforced by either the assignor or the original contracting party. However, the other party may view such an assignment as a reasonable cause for insecurity and may demand assurances from the assignee.
Additionally, the statute specifies that certain rights, such as the right to damages for breach of the entire contract or those arising from the assignor's full performance, can be assigned despite any agreements to the contrary. Nevertheless, assignments are generally invalid if they materially alter the duty of the other party, significantly increase their burden or risk, or impair their chances of obtaining return performance.
It is worth noting that non-compete agreements in Minnesota have been the subject of legal debate, with courts grappling over their assignability. Some courts have suggested that assignability depends on the language of the contract, while others advocate for the "personal confidence" view, which requires explicit consent for assignments.
To summarise, contractual rights and obligations in Minnesota can be assigned, but it is essential to carefully consider the potential impacts on all parties involved and seek legal advice when necessary.
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Assignment risks
Contract assignments can carry various risks. Firstly, the dynamic of the contract can change significantly, affecting how it is performed. This may alter what is expected of the other party, decrease the value or return they anticipated, or increase their risk. For instance, if a local, organic dairy assigned a contract to a factory farm dairy, this would be considered a material alteration. Such an assignment may not be enforceable by a court.
Secondly, the law imposes severe restrictions on the validity and effect of assignments in many instances. Some laws limit or prohibit assignments, such as prohibiting the assignment of future wages by an employee. Other assignments may not be prohibited by statute but may violate public policy, such as personal injury claims, which could encourage litigation.
Thirdly, the original parties may remain liable unless there is an agreement to the contrary. The assignee takes on any disputes and lawsuits related to the original contract. This means that the assignor may be held responsible for the actions of the assignee.
Finally, the other party may treat any assignment that delegates performance as creating reasonable grounds for insecurity and may demand assurances from the assignee.
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Oral contracts
The state of Minnesota has a law called the "Statute of Frauds", which requires certain contracts to be in writing. Contracts that fall under this category include:
- Contracts for the sale of goods priced at $500 or more.
- Contracts that cannot be performed within one year.
- Contracts for the transfer of an interest in land.
- Contracts that obligate a party to act as a guarantor.
- Certain credit agreements (loans).
If oral contracts falling under these categories are not put into writing, they cannot be enforced in a civil lawsuit. However, Minnesota case law does recognize a "partial performance" exception to the Statute of Frauds. This exception serves to prevent fraud and applies when the parties' actions unequivocally reference a contract between them. Additionally, estoppel, which refers to unfair reliance, can be a valid exception to the Statute of Frauds. Minnesota courts recognize two types of estoppel: promissory estoppel and equitable estoppel.
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Choice of law
A choice-of-law clause, also known as a governing law clause, allows the contracting parties to choose the substantive law of Minnesota to apply to the contract. Parties should review the choice-of-law clause together with the choice of forum clause, as Minnesota courts consider both provisions when deciding whether to adjudicate the claim and what law to apply.
In the absence of a choice-of-law clause, Minnesota courts may look to the location(s) where the contract was negotiated, signed, or performed. However, it is important to note that other factors, such as the jurisdiction listed in the contract, the jurisdiction where the events occurred, or the jurisdiction where the defendant resides, may also come into play under special rules or laws.
The choice of law analysis is particularly relevant when determining the assignability of non-compete agreements under Minnesota law. Courts have considered whether the contract expressly contemplates assignment and the specific language of the contract regarding assignability.
In the case of Metro Networks Communs., Ltd. P’ship v. Zavodnick, the Minnesota district court addressed the enforceability of an employee's non-compete agreement that was assigned from one entity to another during corporate restructuring. The court's decision suggested that when a non-compete contract does not provide for assignment, a Minnesota court is likely to find any assignment void.
Additionally, the Minnesota Supreme Court's decision in the Maslowski case abolished the prohibition on champerty, which has implications for litigation financing and the assignment of rights in lawsuits or disputes.
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Frequently asked questions
An assignment is when a party transfers rights or obligations in a contract to another party, also known as a substitution or novation. This means that a new person is coming into the contract.
Generally, assignments are valid unless the contract has clear language preventing it. However, the Minnesota Supreme Court has not yet cleared the confusion over whether a non-compete agreement can be assigned.
Assigning a contract can significantly change the dynamic of the contract. The person taking the assignment (the assignee) takes on any disputes and lawsuits related to the original contract. Additionally, the assignment may materially change the duty of the other party, increase their burden or risk, or impair their chance of obtaining return performance.
