Minnesota Bans Non-Competes

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Mark P. Harbison

June 2, 2023

On May 24, 2023, Minnesota Governor Tim Walz signed into law a bill effectively banning non-compete agreements.

The new law, which is scheduled to go into effect on July 1, 2023, renders void and unenforceable all covenants not to compete with employees and independent contractors. Notably, however, the law is not retroactive and applies only to agreements executed after the law’s effective date.

The law’s definition of a non-compete agreement expressly excludes non-disclosure agreements and agreements designed to protect trade secrets or confidential information.  Moreover, a covenant not to compete does not include non-solicitation agreements, including agreements restricting the ability to use customer or contact lists or solicit customers of the employer. Instead, the law applies only with respect to a true “covenant not to compete,” defined as an agreement between an employer and an employee that restricts the employee, after termination of the employment, from performing:

• work for another employer for a specified period of time;
• work in a specified geographic area; or
• work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.

Employers should carefully note that the non-compete ban extends to agreements with “any individual who performs services for an employer, including independent contractors.”  Unlike similar laws passed in other jurisdictions, such as Washington, D.C. and Washington State, the Minnesota law does not contain a carve-out to permit non-compete agreements entered into with high earning employees and executives.

Under the new law, non-compete agreements still may be valid as part of the sale of a business or in the “anticipation of the dissolution of a business.”  Accordingly, a seller or former owner of a business can be restricted from joining or forming a competing business within a reasonable geographic area and for a reasonable length of time.

In addition to banning non-compete agreements, the law also contains a provision barring employers from requiring employees who primarily reside and work in Minnesota to agree, as a condition of employment, to foreign choice of law or venue provisions.[1]  Any such provision in an employment agreement is voidable at any time at the request of the employee, and the matter will be determined in Minnesota under Minnesota law.  Employees who seek to enforce their rights may be awarded reasonable attorney’s fees in addition to injunctive relief and other available remedies.

As the July 1, 2023 effective date approaches, employers should consult with legal counsel to review and update their employment and independent contractor agreements, particularly with respect to covenants not to compete, as well as choice of law and venue provisions, to ensure compliance with the new law.

[1] Specifically, the law prohibits employers from requiring employees who primarily reside and work in Minnesota to agree, as a condition of employment, to a provision in an employment agreement that (1) requires the employee to adjudicate (including by litigation or arbitration) outside of Minnesota a claim that arose in Minnesota; or (2) deprives the employee of the substantive protection of Minnesota law with respect to any dispute arising in Minnesota.

The author of this article, Mark Harbison, 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 Minnesota, Pennsylvania, 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.