Earlier this month, we wrote about a bill passed by the New York State Assembly which, if signed by the governor, will prohibit nearly all noncompete agreements for workers in the state. Now, yet another state, Minnesota, has banned nearly all post-employment noncompetes entered into on or after July 1, 2023.

Broad Ban on Noncompetes

Gov. Tim Walz signed into law May 24 a bill prohibiting employers from entering into noncompete agreements with employees or independent contractors. The Minnesota law defines a noncompete as an agreement between an employer and an employee (or independent contractor) that restricts the individual from engaging in any of the following activities after the termination of their employment:

• working for another employer for a specified period of time;
• working in a specified geographical area; or
• working for another employer in a capacity that is similar to the employee’s (or independent contractor’s) work for the employer that is party to the noncompete.

Exceptions

Though essentially a complete ban on post-employment noncompete agreements, the Minnesota law expressly does not apply to nondisclosure agreements, confidentiality agreements or nonsolicitation agreements. Moreover, the law does not prohibit noncompetition provisions associated with the sale of a business when the agreement is decided as a condition of the sale and agreements entered into in anticipation of the dissolution of a partnership, limited liability company or corporation.

Additional Provisions

Perhaps anticipating that employers will attempt to circumvent the law’s broad prohibition on noncompetes by using choice-of-law provisions favoring other state laws or requiring Minnesota employees to bring claims in other states with more “employer-friendly” laws, Minnesota’s new law also limits choice-of-law and choice-of-venue provisions. Thus, if an employee works in Minnesota, the agreement is likely subject to Minnesota law.

Moreover, the law should not be “construed to render void or unenforceable other provisions in a contract or agreement containing a void or unenforceable covenant not to compete.” Thus, courts will enforce lawful provisions of agreements that contain unlawful noncompete clauses.

The law also does not apply retroactively, meaning noncompete provisions in agreements entered into before July 1, 2023 may still be enforced.

Remedies

If an employer unlawfully requires an employee or independent contractor in Minnesota to sign a noncompete that violates the new state law, even if the employer does not try to enforce the noncompete, the employee or independent contractor may obtain injunctive relief, reasonable attorneys’ fees or other equitable relief as determined by a court.

Employer Takeaways

State and federal lawmakers are clearly closing in on noncompetes. The Federal Trade Commission has issued a proposed rule to largely ban noncompetes; the General Counsel of the National Labor Relations Board has recently issued a memorandum asserting that noncompetes generally violate the National Labor Relations Act; and bills similar to those in New York and Minnesota are enacted or pending in states across the country to restrict, if not ban, the use of noncompetes.

Consequently, employers in all states should be proactively gathering information about their use of various noncompete agreements to help identify agreements that might be at risk. Employers should also start considering alternative strategies to protect their confidential information, customers and employees in the event their agreements are nullified in the future. Stay tuned for more updates as more jurisdictions address noncompetes.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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