Minnesota to Ban Noncompetition Agreements

On May 16, 2023, the Minnesota legislature passed a bill banning noncompetition agreements. The bill is expected to be signed shortly by Governor Tim Walz. The ban is set to take effect on July 1, 2023, and is not retroactive. Thus, noncompete agreements executed before July 1, 2023, will not be prohibited by the new law.

The Minnesota ban broadly applies to noncompete agreements between employers and employees, as well as to noncompete agreements with independent contractors. The law will prohibit any agreement that would “restrict the employee [defined to include independent contractors], after termination of the employment, from performing (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 a party to the agreement.” The forthcoming law does not contain any exception for C-suite executives, high-wage employees, or knowledge workers.

The new law also contains restrictions designed to prevent employers from using choice of law or venue clauses to evade application of the ban for Minnesota employees or independent contractors.

The law does not prohibit noncompete agreements that are “agreed upon during the sale of a business” or “agreed upon in anticipation of the dissolution of a business.” The law also does not ban non-solicitation, non-disclosure, or confidentiality agreements.

It is crucial for Minnesota employers to re-evaluate how best to protect their legitimate business interests, including their trade secrets, in light of the forthcoming ban. It is also important for Minnesota companies to avoid using noncompetition provisions in their employee and applicable independent contractor agreements after the ban takes effect on July 1, 2023. The forthcoming law provides that courts may award employees and independent contractors their reasonable attorneys’ fees to enforce their rights under the new noncompete ban.

Once enacted, Minnesota will become the fourth state to statutorily ban noncompete agreements with only narrow exceptions, joining California, Oklahoma, and North Dakota. Other states prohibit noncompete agreements for employees below a certain income threshold — e.g., Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington. The vast majority of states have no outright statutory ban on noncompete agreements. Minnesota’s ban comes amidst the Federal Trade Commission’s (FTC) ongoing proposed rulemaking that would seek to ban noncompetition agreements nationwide; ArentFox Schiff LLP previously published alerts on the FTC’s proposed rule.

ArentFox Schiff LLP will continue monitoring developments in this area. We are available to discuss how the forthcoming law will impact your business and ways to protect your business interests.


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