Minnesota is banning employment non-competes and restricting provisions that require non-Minnesota law or venue for non-compete disputes. The law will become effective on July 1, 2023, and will apply to agreements entered into on or after that date. Minnesota’s changes follow many other states that have statutorily limited restrictive covenants but are separate from the FTC’s proposed ban (which remains pending). Now is the time to review and revise your restrictive covenant program.
This week the Minnesota legislature overcame the last hurdle to pass a bill banning non-competes. Governor Walz is expected to sign the bill into law. Minnesota’s new non-compete law generally does the following:
- Bans non-competes for employees and independent contractors.
- Applies these bans to any contract—including agreements governing employment, contractor status, intellectual property rights, equity, separation, severance, and anything else.
- Bans non-Minnesota choice-of-law and choice-of-venue provisions for non-competes in employment agreements.
- Gives employees and contractors the right to void those provisions and to seek attorneys’ fees associated with litigation to enforce that right.
The bill does not ban sale-of-business non-competes, or carefully crafted customer non-solicits, employee non-solicits, or non-disclosure agreements—but those provisions remain subject to increasingly skeptical court consideration. The ban is also not retroactive, so existing non-competes remain potentially enforceable.
To avoid illegal agreements and the risk of paying the attorneys’ fees for those who challenge these agreements, companies should immediately review all their restrictive covenants in all their contract forms. These steps are most important for:
- Minnesota-based companies using restrictive covenants with a non-compete in any form (e.g., a broad customer non-solicit).
- Non-Minnesota-based companies employing Minnesota workers and using restrictive covenants selecting non-Minnesota law or a non-Minnesota venue for disputes.
Practically speaking, that review will likely result in:
- Removing non-competes from nearly all your contracts.
- Revising customer non-solicits, employee non-solicits, and non-disclosure provisions to avoid them being considered de facto non-competes.
- Developing a strategy for rolling out multi-state covenants that minimizes administrative burden yet maximizes enforceability. (For employers wanting agreements in all states, NJL’s approach typically can pare the versions to just a handful.)
Reach out to NJL’s unparalleled team for assistance in auditing your restrictive covenant programs.