The Ever-Changing Landscape of Non-Compete Agreements | Part 1/4: A Summary of Minnesota’s Non-Compete Laws
August 19, 2024 | Kristin Kingsbury
Key Takeaways Under Minnesota State Law:
- Businesses should not use non-compete agreements for their employees and should not be including non-compete language in their employee handbook or onboarding processes anymore.
- Existing non-compete agreements entered before July 1, 2023, are still valid, so long as they are reasonable.
Good Practice:
- Conduct due diligence on current agreements to verify that sufficient protections exist.
- Assess employees’ access to trade secrets to ensure business interests are being properly protected.
- Review venue provisions in form employment contracts.
- Review and strengthen less restrictive alternatives (e.g., NDAs, non-solicitation agreements, trade secret law, forfeiture provisions, etc.).
- Consult with an experienced attorney to determine the best courses of action for your specific situation.
This is Part One of a Four-Part series on recent developments in non-compete law. This article details the nuts and bolts of the Minnesota statutory prohibition on non-competes, effective July 1, 2023. The next article will outline the Rule promulgated by the Federal Trade Commission (FTC). The third article in the series will summarize litigation attacking the FTC Rule. The fourth and final article in the series will address practical guidance going forward, including the impact of the United States Supreme Court reversing the Chevron doctrine on the FTC Rule – in whatever form it may be considering the fast-paced developments expected over the next couple of months.
Non-compete agreements generally prohibit a former employee from taking actions that may compete with their former employer and/or give the former employee an unfair advantage in the marketplace. These agreements typically include time and/or distance limitations. Most commonly, non-compete agreements prohibit former employees from working for employers in direct competition with the former employer.
However, the general attitude toward non-competes has shifted to look upon them unfavorably. California, North Dakota, and Oklahoma have banned non-competes entirely, and many other states have some sort of restriction in place.
On July 1, 2023, Minnesota joined the growing number of states prohibiting employment non-compete agreements, a drastic change for employees and employers operating in the state. Under the new law, employees are defined broadly as “any individual who performs services for an employer, including independent contractors.”
The law identifies a non-compete agreement as any agreement between employers and employees that limits the terminated employee from performing:
- work for another employer for a specified period;
- work in a specified geographical area; or
- work for another employer in a similar position as their prior employment.
However, non-compete agreements entered into prior to July 1, 2023, are still valid and enforceable. Minnesota state law is not retroactive; it only affects non-competes entered on or after July 1, 2023. In addition, a non-compete agreement is permissible if agreed as part of the sale of a business or in anticipation of the dissolution of a business. It still must comply with case law requirements for geographical and time scope, and reasonableness.
The non-compete law in Minnesota also addresses venue and choice of law. Employers are prohibited from “requiring the employee to adjudicate outside of Minnesota a claim arising in Minnesota, or deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota” for those employees domiciled in Minnesota (i.e., primary residence and work is in Minnesota). An employer is barred from using a non-Minnesota choice of law in a non-compete agreement between an employee or independent contractor to avoid the impact of Minnesota law.
It is important that employers consider other available forms of protection. Nondisclosure agreements, agreements to protect trade secrets and confidential or proprietary information, and non-solicitation agreements are all still acceptable under Minnesota law.
Where employers run afoul of the new Minnesota statute restricting non-competes, the courts in Minnesota “may award an employee who is enforcing rights under [the statute] reasonable attorney fees” in addition to “injunctive relief and other remedies.”
Navigating employment laws can be an incredibly complex task. This is especially true in matters involving non-compete agreements given the evolving nature of Minnesota law. Being informed and in compliance requires a deep understanding of Minnesota’s law and the ability to adjust to new developments. Contacting an experienced employment law attorney may be beneficial if you have any questions regarding whether your existing non-compete agreement is valid or how Minnesota’s new (ish) law affects you.
Stay tuned for more developments.
Law clerks Thomas J. Reinhardt and Adam J. Revoir contributed to this article.
Sources:
- Emily Peck, Mapped: Where noncompete agreements are banned or restricted, AXIOS (Apr. 25, 2024), https://www.axios.com/2024/04/25/noncompete-agreement-ban-us-states-2024.
- Minn. Stat. § 181.988.