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July 1, 2024
Last July, Minnesota banned non-competition agreements. This July, Minnesota seeks to protect employee mobility further with another law that prohibits any service provider from restricting, restraining, or prohibiting a customer from directly or indirectly soliciting or hiring an employee of the service provider. See 2023 Minn. S.F. 3852.
The law defines a “service provider” as a group of persons “acting directly or indirectly as an employer or manager for work contracted or requested by a customer.” For example, employers may use a staffing company to find administrative personnel for their business in Minnesota. Often in those circumstances, the staffing company will ask the employer to sign an agreement that restricts the employer from later directly hiring the administrative personnel (i.e., cutting out the intermediary staffing company) for some period of time or subject to a fee. Effective July 1, such restrictions on hiring will be unenforceable in Minnesota.
One limited exception exists: The law does not apply to workers providing professional business consulting for computer software development and related services who are seeking employment with an employer through a service provider with the knowledge and intention of being considered for a permanent position with the employer at a later date.
The law applies retroactively to existing agreements between service providers and employers. As to such agreements, the service providers must give notice to their workers about the law and advise them that existing hiring restrictions are unenforceable. We note that the law states that it is “effective July 1, 2024, and applies to contracts and agreements entered into on or after that date.” However, because the law specifically addresses notice to workers regarding existing restrictions, it appears that the law is meant to be retroactive.
Service Providers: If you have workers in Minnesota, it’s time to evaluate the restrictions in your service contracts with customers and send notices to your workers. Consult legal counsel with questions.
Effective July 1, Minnesota employers in all industries except the construction industry (changes will be effective in the construction industry in 2025) will be subject to increased penalties for misclassifying employees as independent contractors. The penalty (from Minnesota’s Department of Labor and Industry [Department]) is up to $10,000 for each individual that an employer failed to classify, represent, or treat as an employee. The Department also may order employers to pay damages to each misclassified worker, including minimum wage and overtime; paid time off, insurance, and other benefits; and employer contributions to Social Security, Medicare, and unemployment. Individual liability may exist for an owner, partner, principal, member, officer, or agent who knowingly or repeatedly engaged in employee misclassification.
Employers: It’s time to audit your workforce to ensure workers are classified properly. Again, consult legal counsel with questions.
The author of this article, Patricia Tsipras is a member of the Bar of Pennsylvania. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in Pennsylvania, Minnesota, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist. Always consult an attorney with specific legal issues.
