Minnesota’s New Non-Compete Law: What Employers Need to Know
A new law went into effect in Minnesota that prohibits almost all post-employment non-compete agreements entered into between employers and employees. As of July 1, 2023, a non-compete agreement with an employee or independent contractor is void and unenforceable, except in limited situations involving the sale or dissolution of a business. As it bans nearly all post-termination non-compete agreements, the Minnesota statute is one of the most stringent non-compete laws in the United States.
What Should Employers and Employees Know About the New Minnesota Non-Compete Law?
Due to the enactment of Minn. Stat. § 181.988, non-compete agreements are effectively banned in Minnesota with only two narrow exceptions — regardless of the level of employment or an employee’s access to proprietary information. Minnesota joins several other jurisdictions that have passed similar legislation, including California, North Dakota, and Oklahoma. However, there are some unique components to Minnesota’s law. Here are some essential takeaways employers should keep in mind:
1. The Law is Not Retroactive
The new Minnesota non-compete law only applies to post-termination non-compete agreements that were entered into on or after July 1, 2023 with an individual who works or lives in the state of Minnesota. It does not apply retroactively to non-competes that were entered into before that time.
2. The Law Only Prohibits Non-Compete Agreements
The new Minnesota law only bans non-compete agreements. These are the restrictions an employer can place on an employee or independent contractor to prevent them from working for a competitor for a specified period of time in a certain geographical area. The law makes it clear that it does not prohibit non-solicitation agreements or non-disclosure agreements. In other words, employers are still permitted to ask employees or independent contractors to sign confidentiality, non-solicitation, and intellectual property assignment agreements to safeguard their company’s trade secrets, goodwill, and confidential information.
3. The Law Applies to Both Employees and Independent Contractors
The statute applies not only to non-compete agreements for employees, but also for independent contractors. Specifically, employees are broadly defined under the Minnesota non-compete law as “any individual who performs services for an employer, including independent contractors.” The law defines an independent contractor as “any individual whose employment is governed by a contract” and whose compensation is not reported to the Internal Revenue Service on a Form W-2.
4. There are Two Exceptions to the Law
While the law bans nearly all non-compete agreements as of July 1, 2023, there are two narrow exceptions that should be noted. Non-competes may be entered into 1) during the sale of a business or 2) in anticipation of the dissolution of a partnership, LLC, or corporation. When a business is being sold, both the buyer and seller may agree upon a non-compete that prevents the seller from conducting similar business within a reasonable geographic area for a reasonable length of time. However, the statute does not define what would constitute a “reasonable” time period or geographic area.
5. An Employer May Not Require Employees to Adjudicate Claims Outside Minnesota
The law includes a specific subdivision that prevents employers from attempting to circumvent the law. Notably, an employer may not require an employee who works and resides in Minnesota to agree to a provision to adjudicate claims arising from their employment in another jurisdiction as a condition of employment. Any such provision in a contract is considered voidable at any time — and may be rendered void at the employee’s request.
6. An Employee May Be Entitled to Recover Attorneys’ Fees for Enforcing Their Rights Under the Law
It’s crucial for employers to be aware that employees and independent contractors who enforce their rights under the law may be entitled to injunctive relief — as well as any other remedies available to them. A court also has the authority to award reasonable attorneys’ fees to an employee who prevails in proving a violation under the law.
How Can Employers Protect Their Interests Moving Forward?
The new Minnesota non-compete law ultimately means that an employer would no longer be able to restrict key employees, such as C-suite executives, from working for a competitor. Critically, these employees are most likely to have access to a company’s trade secrets and other information that would be valuable to a competitor. Minnesota employers may need to reconsider the measures that should be taken to safeguard their businesses — and evaluate new strategies to protect their interests — given the new legal framework that is in place.
Employers can still rely on other legal means to protect their proprietary information. For instance, a company may assess additional measures for trade secret protection, utilize confidentiality agreements, and implement safeguards to protect intellectual property. Importantly, employers should also conduct a thorough review of their employment contracts and agreements to ensure they are compliant with the statute to avoid the potential for litigation and other unintended consequences.
Contact an Experienced Minnesota Business Attorney
If you’re a Minnesota employer, it’s vital to be aware of the new non-compete law and how it can impact your business. A skillful business attorney can best advise you regarding compliance and work with you to create a strategy that will protect your interests and prevent litigation. Located in Fargo, Fremstad Law offers high quality legal services to employers and business owners in North Dakota and Minnesota for a wide variety of business matters. We welcome you to contact us online or call (701) 401-9440 to learn how we can assist you.
