The Minnesota Legislature passed a bill, which Governor Tim Walz signed into law on May 24, 2023, that renders most future noncompete agreements with an employee or independent contractor void and unenforceable. The bill is set to become effective on July 1, 2023, but is not retroactive and only applies to contracts and agreements entered into on or after the effective date.
No Exceptions for High Earners
The new Minnesota law generally bans all noncompete agreements, regardless of the employee's role at the employer. Notably, the bill does not exclude high earners from the general ban on noncompete agreements, which distinguishes it from similar laws in Washington, D.C., and Washington state. Thus, under the construct of the bill, an employer is not permitted to contractually prohibit a highly paid executive from resigning to join a competitor under Minnesota law.
Exceptions for Sale or Dissolution of Business
The bill provides for the following two exceptions to the general ban on noncompete agreements:
- The covenant not to compete is agreed upon during the sale of a business and prohibits the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time; or
- The covenant not to compete is agreed upon in anticipation of the dissolution of a business and prohibits the parties from carrying on a similar business within a reasonable geographic area where the business has been transacted.
Nondisclosure and Nonsolicitation Agreements Permissible
The bill's definition of a "covenant not to compete" excludes:
- Nondisclosure agreements (including agreements designed to protect trade secrets or confidential information); and
- Nonsolicitation agreements (including agreements restricting the ability to use client or contact lists or solicit customers of the employer).
An unenforceable noncompete agreement would not affect the enforceability of other provisions in the agreement.
Choice of Law and Venue
The bill prohibits employers from requiring an employee who primarily resides and works in Minnesota, as a condition of employment:
- To agree to a choice of law provision depriving the employee of the substantive protections of Minnesota law with respect to controversies arising in Minnesota; or
- To adjudicate, litigate, or arbitrate outside of Minnesota a claim arising in Minnesota.
In addition to injunctive relief and other available remedies, the bill provides for reasonable attorneys' fees for an employee enforcing rights under the bill.
Because the bill is set to take effect on July 1, employers with operations in Minnesota should immediately take the following steps:
- Review form employment and independent contractor agreements to:
- Remove noncompete provisions;
- Update choice of law and venue provisions conflicting with the bill; and
- Consider enhancing nondisclosure and nonsolicitation provisions to ensure comprehensive protection of trade secrets, confidential information, and client or contact lists; and
- Reassess which employees have access to trade secrets, confidential information, and client or contact lists and consider other measures for protecting this information.