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Minnesota Bans Employee Non-Compete Agreements

26 Jun


Update Applicable to:

All employers in Minnesota

What happened?

In May 2023, Minnesota passed legislation that bans nearly all non-compete agreements between employers and employees, with few exceptions. The new law, which was part of the state’s omnibus spending bill, is effective immediately, but only applies to contracts and amendments entered into on or after July 1, 2023.

What are the details?

To clarify, a covenant not to compete is defined as an agreement that restricts the employee, after the termination of the employment, from (1) performing work for another employer for a specified period of time; (2) performing work in a specified geographical area; or (3) performing work for another employer in a capacity that is similar to the employee’s work for the employer that is a party to the agreement.

Notably, the new law does not cover nondisclosure agreements, confidentiality agreements, non-solicitation agreements, or agreements that limit the use of client lists. Accordingly, these provisions remain permissible.

The law applies to all non-compete agreements between an employer and an employee or individual independent contractor, with two exceptions:

  1. During the sale of a business, sellers of the business and the partners, members, or shareholders of the business may agree not to carry on a similar business within a reasonable geographic area and for a reasonable length of time; and
  2. Upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation, the partners, members, or shareholders may agree not to carry on a similar business within the geographic where the business was transacted.

The law includes exceptions for covenants not to compete entered into in connection with the sale or dissolution of a business.

The law provides that a covenant not to compete that does not fall within one of the statutory exceptions is “void and unenforceable.” The law further provides that, in addition to injunctive relief and any other available remedies, a court “may” award an employee who is enforcing rights under the law the employee’s reasonable attorney’s fees.

For more information, please see the links below:

Article 1, Article 2

Omnibus Bill: SF3035

What do employers need to do?

Employers should seek legal counsel from their employment attorney to reevaluate their current and prospective restrictive covenant agreements and exit procedures. As the law does not apply retroactively, employers do not need to change their existing agreements, but should update their forms to ensure compliance moving forward.

Need help understanding how changes to employment laws will affect your business?

Learn more about how Vensure's Minnesota PEO services can help you navigate complex employment laws and keep your business compliant.

This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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