What Does Minnesota's Ban on Non-Compete Agreements Mean?

In a groundbreaking move for employee rights and business practices, Minnesota Governor Tim Walz recently signed a bill into law that effectively bans non-compete agreements in employment and independent contractor contracts. With this significant development, Minnesota joins the ranks of just three other states that have enacted similar legislation.

The new law is scheduled to take effect on July 1, 2023. Importantly, its provisions will not apply retroactively to non-competes executed before that date.

While this law will drastically change the MN employer-employee relationship, it will also present a challenge for businesses in protecting their trade secrets and other confidential information. Employers must explore alternative methods to safeguard intellectual property and maintain a competitive edge in the evolving business environment.

What the New Non-Compete Law Covers

Under this legislation, the ban on non-competes extends beyond the traditional employer-employee relationship, to include independent contractors. Furthermore, the employee's income level and scope of work is inconsequential; the law applies to all employees, regardless of their position.

Once an employee or independent contractor separates from the company, employers can no longer impose restrictions preventing them from working for a competitor. While the provision not to compete will be voided, the rest of the contract will remain valid. This means that other contractual obligations between the parties will still be enforceable, providing some protection for employers.

Still, the new law effectively removes the ability for businesses to restrict a former employmee’s engagement with a competitor, ensuring greater mobility and freedom for employees in Minnesota's job market.

In addition, there will be limitations on the choice of law and venue. The ban on non-compete agreements will prevent employers from mandating that employees located in Minnesota handle claims that arise in Minnesota outside of the state. This restriction applies to the complete employment agreement, not just the non-compete section.

Exceptions Under the New Law

While Minnesota's new law casts a wide net in its prohibition of non-compete agreements, there are notable exceptions to its application. One such exception is within the context of business sales or dissolutions. Sellers, partners, members, or shareholders may be prohibited from engaging in a similar business relationship within a reasonable geographic area for a reasonable period of time.

Provisions That Will Still Be Enforceable

Although the new law imposes a ban on covenants not to compete, businesses can still include certain provisions in employment contracts in order to protect business interests and assets.

The law exempts non-solicitation, non-disclosure, and confidentiality agreements from its scope. This means employers can still restrict employees from soliciting their customers or clients after leaving the company, which helps to safeguard valuable and longstanding customer relationships.

Furthermore, businesses can continue to protect their confidential information and trade secrets by pursuing breach of contract claims in the event of a violation.

Potential Impacts of the Non-Compete Ban

Minnesota's ban on non-compete provisions may have significant implications for employers, who now find themselves without that measure to encourage the preservation of personnel and resources.

As such, many business owners will need to reevaluate their practices and devise alternative strategies to safeguard vital interests, and explore other protective measures and contractual language.

Key considerations include assessing the level of access new employees will have to trade secrets and other sensitive company information. By carefully managing access and implementing robust non-disclosure and confidentiality agreements, employers can strike a balance between fostering a competitive workforce and protecting their confidential company information and customer relationships.

These new conditions call for a proactive approach from employers to ensure they adapt their practices and policies to comply with current legislation while effectively safeguarding their business interests.

At Kennedy & Ruhsam Law Offices, P.A., we remain current on changes in business law to develop comprehensive strategies and ensure clients comply with requirements. Contact our Eagan team at (651) 369-7749.