Minnesota will soon see a major change in its noncompete law. The Minnesota legislature has passed a bill banning noncompete provisions in Minnesota moving forward, and the bill is on its way to Governor Walz, who has indicated he intends to sign it. Here is a summary of the main takeaways from the law:
- The law completely bans “covenants not to compete,” which it defines as restrictions prohibiting a worker, after the termination of employment, from performing:
1. Work for another employer for a specified period;
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 a party to the agreement.
- The law applies both to employees and independent contractors.
- Unlike the FTC’s proposed noncompete ban, the bill does not apply retroactively; therefore, noncompete covenants previously entered into are not affected by the law. Instead, the new ban will apply to noncompete provisions entered into on or after July 1, 2023.
- Like noncompete bans from other states such as California, the law prohibits the use of “choice of law” clauses that seek to apply another state’s law if the employee “primarily resides and works in Minnesota.”
- Under the new law, any agreement containing a noncompete restriction is not automatically void, but the law will cause the noncompete portion to be unenforceable while leaving the rest of the agreement intact. That said, the law gives employees the right to seek recovery of their “reasonable attorney fees” incurred in enforcing their rights under the new law. Therefore, employers should think twice before including an otherwise unenforceable noncompete in an agreement for its potential deterrent effect.
What can employers do now?
Fortunately, the law is clear regarding what types of restrictions would still be permissible, including the following:
- Noncompetes entered into as part of the sale of the business — as it relates to the seller of the business;
- Noncompetes entered into “upon anticipation of the dissolution of a business;”
- Nondisclosure agreements — although, as we previously noted here, employers should carefully review nondisclosure/confidentiality agreements in light of the National Labor Relations Board’s recent McLaren Macomb decision;
- Restrictions on the use of trade secrets or confidential information;
- Non-solicitation agreements;
- Restrictions on the use of client or customer lists; and
- Agreements not to solicit customers of the employer.
Takeaways and next steps
Taft’s Minneapolis Employment and Labor Relations team will continue to monitor the law and provide an update once it is officially signed by the Governor. Given the near certainty that this ban is going into effect, employers should reach out to their labor and employment counsel and ensure that their Minnesota agreements are in compliance moving forward.
Although the noncompete prohibition certainly restricts a Minnesota employer’s ability to protect its business and customer goodwill when a worker departs, the law’s carve-out of other restrictive covenants — including most notably the ability to include a customer non-solicitation clause — provides opportunities for businesses to protect their interests while still abiding by the new law.