Minnesota Non-Compete Ban Signed into Law and Effective July 1, 2023

By Sharon Beck, Amy Conway and Greta Bauer Reyes

Minnesota Governor Tim Walz has now officially signed into law a bill including provisions that will prohibit employment noncompetition agreements. MN SF 3035, signed by Governor Walz on May 24, 2023, restricts employers from entering into noncompetition agreements on or after July 1, 2023; the prohibition will not extend retroactively to noncompetition agreements signed before this date (unlike the proposed FTC ban on noncompetition agreements).

The bill prohibits agreements that restrict an employee from performing any of the following:

(a) Work for another employer for a specific period of time.
(b) Work in a specific geographical area.
(c) Work for another employer in a similar capacity as the employee’s previous role.

Further, the bill broadly applies to all employees (including C-suite employees and executives) and independent contractors, regardless of their income.

That said, the bill explicitly allows other kinds of agreements that can protect employer information. The bill does not apply to nonsolicitation or nondisclosure agreements (but employers should review and revise such provisions in light of recent NLRB decisions). Moreover, the bill does not apply to agreements (a) that limit an employee’s ability to use client or contact lists, (b) that limit solicitation of a former employer’s customers, or (c) that are designed to protect trade secrets or confidential information. Additionally, the proposed legislation narrowly exempts agreements for the sale or dissolution of a business that restrict the partners, members, shareholders, or other parties from carrying on a similar business, provided the restriction contains reasonable geographic and temporal limitations.

In addition to the restrictions on noncompetition agreements, the bill contains a subdivision stating that employers may not require an employee "who primarily resides and works in Minnesota, as a condition of employment," to agree to choice of law and venue clauses for states other than Minnesota. While the exact scope of this subdivision is not yet clear, the language could be interpreted to invalidate choice of law and forum selection provisions in standard employment agreements even outside of the non-compete context. Employers should consult with their legal counsel to gauge risk in maintaining choice of law and forum selection clauses for outside jurisdictions in agreements for employees who live or work in Minnesota. 

Importantly, the bill provides employees a right to attorney fees for an employer's violation of its provisions—a unique form of relief that is common in employment statutes but, in the context of non-competes, was historically only available if provided for in the parties' contract. That relief will now be available under the statute. In addition to attorney fees, a court may grant injunctive relief and other damages

The law will be codified in the Minnesota Statutes at Section 181.988. To prepare, employers should carefully review all employment contracts and agreements, including those for independent contractors, and remove any non-compete clauses. Moreover, employers (even non-Minnesota employers or employers who do not use non-competes) who currently employ or may employ Minnesota residents working in Minnesota should review choice of law and venue provisions in contracts with employees to ensure compliance with the new law. Further, employers should consider the benefits of the kinds of agreements unaffected by the bill. Nondisclosure (which, as previously mentioned, still must comply with recent NLRB decisions) and nonsolicitation agreements, as well as agreements that restrict an employee’s use of customer or client lists, should be carefully crafted to protect employer’s business needs.

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