June 7, 2023Client Alert

Minnesota Bans Non-Competition Agreements for Minnesota Residents

Following the trend of state legislatures seeking to significantly limit the use of post-employment restrictions, Minnesota’s legislature recently passed a bill to ban non-competition agreements between employers and employees. On May 24, 2023, Minnesota Governor Tim Walz signed the bill into law. Hence, Minnesota has joined a growing number of jurisdictions that have enacted bans on non-competition agreements between employers and employees and/or independent contractors (including California, North Dakota, Oklahoma, and Washington D.C.), and other states that have limited the use of non-compete agreements for low wage employees. 

What does the new law prohibit?
The new law bans any “covenant not to compete contained in a contract or agreement” between an employer and an “employee” (defined to include an independent contractor) that restricts the employee from doing the following after termination of employment:

  1. working for another employer for a specified time;
  2. working in a specified geographical area; or
  3. working for another employer in a capacity that is similar to the employee’s work for the employer that is a party to the agreement.

What sorts of restrictions continue to be permitted?
The definition of “non-compete” does not include non-disclosure agreements or agreements designed to protect trade secrets or confidential information. Moreover, the new law does not prohibit non-solicitation agreements or agreements restricting the ability to use client or contact lists or solicit customers of the employer.

Additionally, the new Minnesota law allows for non-competition agreements that are entered into upon the sale of a business and/or in anticipation of the dissolution of a business. 

Choice of law and venue clauses.
The new Minnesota law also now prohibits employers from selecting a foreign jurisdiction’s choice of law and venue provision in agreements with their employees, where the employee’s employment is conditioned on executing the agreement. Agreements that do not contain Minnesota choice of law and venue provisions are voidable by a Minnesota resident employee and, if the provision is rendered void at the employee’s request, the matter is then litigated under Minnesota law. 

Attorney’s fees.
Courts may award reasonable attorney’s fees to those employees who seek enforcement of their rights under the new Minnesota law.

What is the effective date of the new law?
The effective date of the new law is July 1, 2023, and the law is not retroactive.

What should employers do?
Employers with Minnesota-based employees should immediately review their template new employee agreements containing post-employment restrictions to ensure that they will be Minnesota-compliant for all new hires after the effective date. Additionally, employers who have not had their employment agreements reviewed recently should consult legal counsel to make sure that the post-employment restrictions in those agreements remain enforceable under the everchanging legal landscape affecting the enforceability of post-employment restrictions in various states.

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