The Death of Noncompetition Agreements in Employment within Minnesota
The Minnesota legislature has enacted a statute rendering noncompetition agreements in the employment context unenforceable, provided they are entered into after the effective date. Governor Walz is expected to sign the bill. The legislation applies to all future covenants not to compete and will take effect on July 1, 2023. Consequently, this new statute does not apply to noncompetition agreements entered into prior to July 1, 2023.
The statute prohibits all noncompetition agreements with employees and independent contractors with two exceptions:
- Noncompetition agreements agreed upon during the sale of a business. In such cases, the person selling the business and the partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted covenant not to compete. This agreement will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time.
- Noncompetition agreements agreed upon in anticipation of the dissolution of a business. The partners, members, or shareholders, upon or in anticipating of a dissolution of a partnership, limited liability company, or corporation may agree that any or all of the parties will not engage in a similar business within a reasonable geographic area where the business has been conducted.
The statute applies solely to noncompetition agreements and explicitly excludes nondisclosure agreements, trade secret or confidentiality agreements or non-solicitation agreements (such as non-solicitation of customers and employees). The term “employee” is defined to include independent contractors.
Noncompetition agreements and clauses entered into prior to July 1, 2023 will continue to be enforceable.
It is common in many employment or separation agreements to include a provision that requires an employee or former employee to agree that the law applicable to the agreement is other than Minnesota law. This statute prohibits an employer from requiring an employee who lives and works in Minnesota to agree, as a condition of employment, to a provision that would (1) require the employee to resolve a claim arising in Minnesota outside the state or (2) deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota. Any contract or provision agreement that violates these choice of law requirements is voidable by the employee. If a provision is rendered void at the request of the employee, the matter shall be adjudicated in Minnesota and Minnesota law shall govern the dispute.
In addition to injunctive relief and any other remedies available, a court may award reasonable attorney fees to an employee enforcing their rights under this statute.
Employers with questions about the application of this new statute and the appropriate immediate actions to address it should consult a Larkin Hoffman attorney.