A new Minnesota statute banning non-compete provisions in nearly all employee agreements has now been signed into law. The initiative to create the new statute in question (Minn. Stat. § 181.988) was included in an omnibus jobs, labor, and economic development bill that Governor Walz approved at the end of May. When the new statute goes into effect on July 1, 2023, Minnesota will join California, North Dakota, and Oklahoma to become only the fourth state in the nation to adopt a broad ban on non-competes.
Minn. Stat. § 181.988 Applies to Minnesota Employees and Independent Contractors
Section 181.988 applies to new agreements signed by employees after the July 1, 2023 effective date, and it generally prohibits employers from requiring “employees” (which is defined to include both employees and independent contractors) to sign agreements that contain non-compete restrictions. This is subject to two narrowly-defined exceptions for non-competes that are signed in connection with the sale of a business or in anticipation of the dissolution of a business. Other than those two limited circumstances, the new statute broadly prohibits businesses from requiring employees to sign agreements that contain restrictions on 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.”
Non-Compete Ban Does Not Prohibit Other Types of Restrictive Covenants
Notably, the new statute also clarifies that the prohibition on non-compete covenants does not extend to non-solicitation restrictions (including those for customers and employees), non-disclosure agreements, or agreements designed to protect trade secrets or confidential information, and employers will still be permitted to use such provisions in agreements with their workers. Section 181.988 also provides for severability of provisions within an agreement that violate the new non-compete ban, meaning that courts have authority to sever the non-compliant provisions from an otherwise compliant agreement to preserve the effectiveness of any provisions that comply with the new law.
Choice of Law and Venue Clauses Limited
Similar to a few other states, including California, Minn. Stat. § 181.988 takes the added step of limiting employers’ ability to circumvent the non-compete ban through use of out-of-state choice of law and venue clauses. The new law expressly voids choice of law or venue provisions in employee agreements that are entered into “as a condition of employment,” if such provisions would require a worker who primarily resides and works in Minnesota to adjudicate non-compete-related claims arising in Minnesota in any jurisdiction outside of the state, or if those provisions would require application of another state’s law to such claims and deprive the worker of the substantive protections of Section 181.988.
Enforcement
Importantly, from an enforcement standpoint, Section 181.988 allows employees to seek injunctive relief to void any agreement provisions that violate the new statute. Employees may also be able to seek attorneys’ fees in bringing such an enforcement action.
Section 181.988 does not nullify non-compete agreements signed before July 1, 2023. However, there are always uncertainties about whether and how a court would enforce those agreements going forward, in light of the newly enacted law.
Conclusions and Next Steps
Minn. Stat. § 181.988 has essentially eliminated non-competes as an option on and after July 1, 2023. This has a massive impact and will change procedures and policies for many Minnesota employers, including those working with independent contractors. As such, Minnesota employers will need to act quickly to ensure that any restrictive covenant agreements comply with the new law by July 1, 2023, if they intend to require Minnesota workers to sign such agreements on or after that date.
If you have questions or concerns about any of these changes, please reach out to FMJ’s HR & Employment Law Practice Group, including Shannon McDonough, Natolie Hochhausen, and Jamie Briones. They would be happy to help you with your current agreements and procedures, and they can help you work through strategies for the future.
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