Legislation has been introduced in the Minnesota House of Representatives that would completely ban employment noncompete agreements, with exceptions for sale of business-based provisions. If passed, the proposed law would dramatically alter the legal environment concerning such agreements.
There is currently no statutory regulation of noncompete agreements in Minnesota. Reasonable and properly drafted noncompete agreements are enforced by Minnesota courts. The legislation in question (H.F. No. 506) states that "a contract that prohibits a party to that contract from exercising a lawful profession, trade, or business is void." While the bill contains exceptions related to the sale of a business or the termination of partnerships and limited liability companies, even those exceptions are limited—noncompetes would only be allowed to prohibit carrying on a similar business in "a specified county, city, or part of one of them." Since many businesses are national or international in scope, this would cause significant complications and impediments.
The legislation was introduced by Reps. Joe Atkins (DFL–Inver Grove Heights) and Alice Hausman (DFL–St. Paul). Rep. Atkins is the chair of the House Commerce and Consumer Protection Finance and Policy Committee. The bill has been referred to the Labor, Workplace and Regulated Industries Committee, chaired by Rep. Sheldon Johnson (DFL–St. Paul). At this time, chair Johnson does not plan to hear the bill in committee.
To remain viable this legislative session, the bill would need to be heard in all relevant House policy committees by first deadline on March 15. Without a hearing scheduled and no companion file introduced in the Senate, the bill is unlikely to be acted upon this year. It is important to note, however, that even if the bill does not meet committee deadlines for 2013, it would remain alive for consideration during the 2014 legislative session.
The bill has substantial negative ramifications for businesses that seek to protect confidential information and customer goodwill from departing employees. The current version of the bill states that it is to take effect the day following final enactment, raising the implication that it would invalidate not just future noncompete agreements but all existing agreements subject to Minnesota law.
Additionally, the bill does not address contractual provisions that seek to prevent departing employees from soliciting their former employer's customers. This narrower restrictive covenant is frequently included in employment contracts and routinely upheld by Minnesota courts. Employees seeking to escape the reach of nonsolicit provisions may attempt to argue that such provisions are prohibited by the law—although there would clearly be arguments to the contrary since such provisions do not generally prevent someone completely from exercising a profession, trade or business.
The legislation, if passed, would place Minnesota out of the national mainstream with regard to noncompete agreements. Only a few states have similar legislation prohibiting such agreements.
Go here to view the text of the bill and information regarding its progress.