Minnesota employers have 43 days to consider whether they want to beat the clock and enact or update non-compete agreements before July 1, 2023.
This week, the Minnesota legislature passed a labor appropriations bill which, if signed by Governor Walz as expected, will significantly restrict the use of non-compete clauses in employment and independent contractor agreements, as well as nearly any agreement entered into by a Minnesota party. Specifically, the legislation, styled as an “Omnibus Jobs, Economic Development, Labor, and Industry Appropriations” bill, will render invalid all covenants not to compete signed on or after July 1, 2023, and prevent such non-compete restrictions from being enforced against any individual or entity covered by Minnesota law. This will greatly affect Minnesota employers, companies with employees who work in Minnesota, and any company with a non-compete clause in their corporate documents.
This is a compelling development for companies with non-competes, even those signed years ago, marking the government’s hostility to non-compete agreements. As our clients are aware, the U.S. Federal Trade Commission is working on a nationwide non-compete ban. In response to the federal and state actions, businesses are examining their non-compete agreements and examining how they can protect their goodwill with customers and proprietary interests.
The new law would not affect, limit, or prohibit other types of post-employment covenants, such as non-disclosure agreements, non-solicitation agreements, or confidentiality agreements with or among Minnesota parties. The law is not retroactive; thus, it would not void any non-compete agreement entered into before July 1, 2023. Covenants not to compete in agreements effective prior to July 1 of this year would presumably be enforceable so long as they are not found to be overly broad as to time, geographic scope, or activities restricted.
Notably, employers cannot attempt to circumvent the new non-compete prohibition by selecting, via a forum selection clause or any other method, a state other than Minnesota to adjudicate disputes concerning the non-compete agreement, or by inserting language which would otherwise deprive any party (individuals or business entities) of the protections of Minnesota law. The legislation also incentivizes employees to enforce their rights by recouping their attorneys’ fees from their former employers following a successful challenge to an employer’s attempt to enforce a non-compete agreement.
The legislation contains an exception for temporary and reasonable covenants not to compete agreed upon in connection with the sale of a business, where the covenant not to compete has the effect of restricting the seller from carrying on a similar business; or the dissolution of a business, where the covenant not to compete has the effect of prohibiting the partners, members, or shareholders from carrying on a similar business.
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