[co-author: Kaili Akar]

On May 24, 2023, Minnesota enacted bill SF 3035, prohibiting noncompete agreements across the state.[1] The law, which applies to agreements entered into by employees or independent contractors on or after July 1, 2023, defines noncompete agreements as follows:

an agreement between an employee and employer that restricts the employee, after termination of the employment, from performing:

(1) work for another employer for a specified period of time;

(2) work in a specified geographical area; or

(3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.

The new law does contain several carve-outs permitting non-compete restrictions under certain circumstances. First, noncompete provisions that are agreed upon “during the sale of a business” or “in anticipation of the dissolution of a business” are permissible. Within such provisions, parties may agree not to compete in a similar business within reasonable geographic and time restrictions. Second, the ban does not apply to nondisclosure agreements, non-solicitation agreements, agreements that protect trade secrets or confidential information, or agreements restricting the use of client lists or solicitation of an employer’s customers. A noncompete provision outside of these enumerated exceptions will be unenforceable. Nevertheless, Minnesota courts will sever void noncompete provisions within otherwise enforceable agreements. The law does not, however, specify whether courts may blue pencil or otherwise reform agreements.

Notably, the new law prohibits employers from mandating that employees primarily working or living in Minnesota agree to any provisions that require adjudication outside of Minnesota.

Minnesota now joins California, Oklahoma, and North Dakota in banning noncompete agreements amidst growing scrutiny of such provisions. On a national scale, representatives from the National Labor Relations Board have recently denounced noncompete agreements as violations of labor laws that undermine workers’ advocacy rights and working conditions.[2] In January, the U.S. Federal Trade Commission targeted noncompete agreements, proposing a ban on employers requiring their workers to sign noncompete agreements as conditions of employment.

Employers should comprehensively review their employment agreements to ensure compliance with the new law’s prohibitions, exceptions, and choice of law provisions. Employers should also remain vigilant regarding developments in noncompete restrictions at both state and national levels.

[1] National Law Review, Minnesota to Ban Non-Compete Agreements Other Than Related to Sale, Dissolution of Business, (May 18, 2023) https://www.natlawreview.com/article/minnesota-to-ban-non-compete-agreements-other-related-to-sale-dissolution-business

[2] Daniel Wiessner, Noncompete agreements violate US labor law, official says, Reuters (May 30, 2023) https://www.reuters.com/markets/us/noncompete-agreements-violate-us-labor-law-official-says-2023-05-30/