Update Applicable to:
All employers in Minnesota
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:
- 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
- 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:
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.
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