Minnesota is joining the growing list of state legislatures targeting non-compete agreements, and doing so with one of the most aggressive laws in the nation on the subject. Included as part of the Senate Jobs and Economic Development and Labor Omnibus Budget Bill (S.F. 3035), the newly-enacted Minn. Stat. Section 181.988 (“Section 181.988”) categorically bans non-compete agreements with Minnesota workers subject to a few narrow exceptions. Section 181.988 also takes the approach adopted by Colorado and Washington in prohibiting out-of-state choice of law and forum provisions in employment agreements containing non-compete provisions. The omnibus bill passed the legislature on May 15, 2023, was signed by Governor Tim Walz on May 24, 2023, and will become effective on July 1, 2023. While Section 181.988’s ban on non-compete provisions is not retroactive, any company with employees or independent contractors in Minnesota has just over a month to ensure that their agreements comply with the sweeping provisions of the new law.
Nearly a dozen states have passed laws prohibiting non-compete agreements below certain income thresholds or subject to other limitations, but Section 181.988 has Minnesota join California, North Dakota, and Oklahoma as one of the few jurisdictions with an outright ban on non-compete restrictions. Section 181.988 applies to both employees and independent contractors, with just two narrow exceptions for non-competes in connection with the sale of a business, or in anticipation of dissolution of a business. Beyond those two narrow exceptions, the new law entirely prohibits any provision in an agreement by which an individual is restricted from “(1) work for another employer for a specified period of time; (2) work in a specified geographical area; or (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.” (emphasis added).
Beyond the ban on non-competes, Section 181.988 takes a similar approach to that used in Washington state by prohibiting out-of-state choice-of-forum and choice-of-law provisions in agreements with non-compete provisions. As of July 1st, employers may not require an individual who primarily lives and work in Minnesota, as a condition of employment, (1) to agree to adjudicate a claim arising in Minnesota anywhere outside of that state (whether through litigation or arbitration), or (2) to agree to a provision that would deprive the employee of the substantive protections of Minnesota law, again for any claim arising in Minnesota. While some outlets have reported that this prohibition on out-of-state choice-of-forum and choice-of-law provisions applies to all employment agreements, even those without non-compete provisions, that does not appear to be the case—earlier versions of the omnibus bill passed by the Minnesota house would have done just that, but the Minnesota legislature added language specifying that the requirements for Minnesota forum and law only apply to “claims arising under this section” in the final version of the bill. That being said, the language of the statute is less than clear on the matter, and some employees may argue that the Minnesota law and forum provisions apply to all employment agreements rather than just those with non-compete provisions.
The lone bright spots for affected employers may be that Section 181.988 specifically excludes confidentiality agreements, agreements for the protection of trade secrets, and non-solicit restrictions, and that it contains broad severability language that means other provisions of an employment contact remain enforceable. That being said, anyone with employees in Minnesota should take steps now to ensure that their agreements account for the new restrictive covenant landscape in Minnesota, particularly considering that Section 181.988 allows employees to seek injunctive relief voiding agreements that violate the new law, and potentially be awarded their attorneys’ fees in doing so.
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