Minnesota is banning employment non-compete agreements and restricting provisions that require non-Minnesota laws or venues for disputes.
The law will become effective on July 1, 2023, and will apply to agreements entered into on or after that date. Minnesota’s changes follow many other states that have statutorily limited restrictive covenants but are separate from the FTC’s proposed (and still pending) ban.
Minnesota’s new non-compete law generally does the following:
- Bans non-competes for employees and independent contractors after employment (conflict of interest during employment not impacted).
- Applies these bans to any contract—including agreements governing employment, contractor status, intellectual property rights, equity, separation, severance, or otherwise.
- Bans non-Minnesota choice-of-law and choice-of-venue provisions for non-competes in employment agreements.
- Gives employees and contractors the right to void those provisions and to seek attorneys’ fees associated with litigation to enforce that right.
The bill does not ban sale-of-business non-competes, or carefully crafted customer non-solicits, employee non-solicits, or non-disclosure agreements—but those provisions remain subject to increasingly skeptical court consideration.
Does this change affect previously executed agreements?
Importantly, the ban is not retroactive. Existing non-competes remain potentially enforceable.
How should employers prepare for this change?
To avoid illegal agreements and the risk of paying the attorneys’ fees for those who challenge these agreements, Nilan Johnson Lewis recommends companies that employ Minnesota-based workers immediately review all their restrictive covenants in all their contract forms.
Practically speaking, that review will likely result in:
- Removing non-competes from all your contracts with employees and contractors.
- Reviewing the non-solicit and non-disclosure provisions to guard against them being considered de facto non-competes.
- Developing a strategy for rolling out multi-state covenants that minimizes administrative burden yet maximizes enforceability.