Non-Competes and Trade Secrets in Minnesota

What did Minnesota’s non-compete ban change for employers?

Minnesota law voids every covenant not to compete in an agreement entered into on or after July 1, 2023, unless the covenant is tied to the sale or dissolution of a business. Under Minn. Stat. § 181.988, subd. 2, “Any covenant not to compete contained in a contract or agreement is void and unenforceable.”

The statute defines the covenant by what it stops a person from doing after the job ends. Subdivision 1 covers an agreement that “restricts the employee, after termination of the employment, from performing” work for another employer for a specified period, work in a specified geographic area, or “work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.” The same subdivision makes “employee” mean “any individual who performs services for an employer, including independent contractors.”

The date comes from the session law that enacted the ban, which states that it “applies to contracts and agreements entered into on or after that date” (2023 Minn. Laws ch. 53, art. 6, § 1). An employee who enforces the ban can recover fees: subdivision 2 provides that “a court may award an employee who is enforcing rights under this section reasonable attorney fees.”

In one review of a growing service company’s agreements, the employee template still carried a non-compete years after the ban. I suggested taking the clause out before the next hire signed, because a void clause protects nothing, an employee who enforces the ban may recover attorney fees, and the rest of the agreement kept working. My Minnesota noncompete agreement FAQ answers the employee-side questions.

Which employee restrictions does the non-compete ban leave in place?

Minnesota’s ban leaves confidentiality agreements, non-solicitation agreements, and restrictions on using client lists outside its reach. Minn. Stat. § 181.988, subd. 1 states: “A covenant not to compete does not include a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information. A covenant not to compete does not include a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.”

Two non-competes also survive. Subdivision 2 keeps a covenant valid when “the covenant not to compete is agreed upon during the sale of a business,” or when “the covenant not to compete is agreed upon in anticipation of the dissolution of a business.” Under the sale exception, the seller, its owners, and the buyer “may agree on a temporary and geographically restricted covenant not to compete.” Under the dissolution exception, the owners “may agree that all or any number of the parties will not carry on a similar business within a reasonable geographic area where the business has been transacted.”

A void non-compete does not take the rest of the agreement with it: “Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete.” The surviving tools work best when paired with a written trade secret protection policy.

A second statute reaches a business that does work for customers. Minn. Stat. § 181.9881, subd. 1 defines a “service provider” as “any partnership, association, corporation, business, trust, or group of persons acting directly or indirectly as an employer or manager for work contracted or requested by a customer.” Under subdivision 2, “No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider.” The enacting session law states that the section “applies to contracts and agreements entered into on or after” July 1, 2024 (2024 Minn. Laws ch. 110, art. 2, § 12). Subdivision 3 exempts one group: “This section does not apply to workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date.” In the same review, the company’s client agreement had a mutual no-hire clause, and the half restricting its customers was void in every client agreement signed since July 1, 2024. The statute also requires notice: “the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section.”

How do Minnesota courts judge a non-solicitation agreement?

In Bennett v. Storz Broadcasting Co., 270 Minn. 525, 134 N.W.2d 892 (Minn. 1965), a case about a non-compete, the Minnesota Supreme Court stated the test for restrictive covenants in employment contracts: the restraint must be necessary to protect the employer’s business or good will and no greater than reasonably necessary. For covenants “which relate to employment contracts entered into by wage earners,” the court wrote: “The test applied is whether or not the restraint is necessary for the protection of the business or good will of the employer, and if so, whether the stipulation has imposed upon the employee any greater restraint than is reasonably necessary to protect the employer’s business, regard being had to the nature and character of the employment, the time for which the restriction is imposed, and the territorial extent of the locality to which the prohibition extends.” Bennett arose as an employee’s interference claim against a former employer that threatened suit on a covenant, and the court reversed a summary judgment for the employer.

In National Recruiters, Inc. v. Cashman, 323 N.W.2d 736 (Minn. 1982), recruiters signed non-competes after they had started work. The court held: “Where such a covenant is not ancillary to the initial oral employment contract, it can be sustained only if supported by independent consideration.” The court of appeals applied that rule in Sanborn Manufacturing Co. v. Currie, 500 N.W.2d 161 (Minn. App. 1993), where raises and added duties did not count because they reflected the performance expected under the original hire. In Sanborn, the employee accepted the job offer before the employer asked him to sign, and the court rejected the argument that signing before his first day of work was enough, holding that “Currie and Sanborn had an oral employment agreement before they executed the noncompetition agreement, and thus independent consideration for the noncompetition agreement was required.” Both cases involved non-competes. I suggest treating a non-solicitation agreement signed after the employee accepted the job the same way, because National Recruiters stated its rule for “restrictive covenants.” My page on independent consideration for a non-solicitation agreement covers the question in more depth.

What happens to a non-compete signed before July 1, 2023?

A Minnesota non-compete signed before July 1, 2023, is not voided by the ban, because the enacting session law states that it “applies to contracts and agreements entered into on or after that date” (2023 Minn. Laws ch. 53, art. 6, § 1). An older covenant is judged under the case law that governed before the statute.

The Minnesota Supreme Court wrote in National Recruiters that “We look upon restrictive covenants with disfavor, carefully scrutinizing them because they are agreements in partial restraint of trade.” An older non-compete therefore needs the scope that Bennett requires and, if it was “not ancillary to the initial oral employment contract,” independent consideration under National Recruiters.

My page on pre-2023 agreements under the ban works through those agreements.

When can another state’s law govern a Minnesota employee’s agreement?

For an employee who primarily resides and works in Minnesota, an employer must not require a choice-of-law or out-of-state forum clause, as a condition of employment, that would take away Minnesota law’s protection for a claim under the non-compete statute. The employee may void such a clause. Under Minn. Stat. § 181.988, subd. 3, “An employer must not require an employee who primarily resides and works in Minnesota, as a condition of employment, to agree to a provision in an agreement or contract that would do either of the following”: “require the employee to adjudicate outside of Minnesota a claim arising in Minnesota” or “deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.”

A provision that violates the rule “is voidable at any time by the employee and 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.” The statute adds: “For purposes of this section, adjudication includes litigation and arbitration.”

The protection is narrow in two ways. It reaches only an employee who primarily resides and works in Minnesota, and “This subdivision applies only to claims arising under this section.”

What makes business information a trade secret under Minnesota law?

Under the Minnesota Uniform Trade Secrets Act (MUTSA), information is a trade secret only if it meets two requirements. It must have economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, others who could profit from it. The business must also make reasonable efforts to keep it secret. Minn. Stat. § 325C.01, subd. 5 requires that the information “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use” and “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

An employer controls the second requirement: passwords, need-to-know access, confidentiality agreements, and labels on sensitive files are steps it can document for this purpose. The statute does not require a warning on every document: “The existence of a trade secret is not negated merely because an employee or other person has acquired the trade secret without express or specific notice that it is a trade secret if, under all the circumstances, the employee or other person knows or has reason to know that the owner intends or expects the secrecy of the type of information comprising the trade secret to be maintained.”

Misappropriation, under subdivision 3, includes “disclosure or use of a trade secret of another without express or implied consent by a person who,” among other things, “at the time of disclosure or use, knew or had reason to know that the discloser’s or user’s knowledge of the trade secret was” “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.” Subdivision 2 defines improper means to include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” My page on what counts as a trade secret in Minnesota covers the definition in detail.

What remedies do Minnesota and federal trade secret laws provide?

Minnesota’s trade secret statute lets a court stop actual or threatened misappropriation and award damages, and the federal Defend Trade Secrets Act (DTSA) gives a parallel claim when the secret is tied to interstate commerce. Under Minn. Stat. § 325C.02, “Actual or threatened misappropriation may be enjoined,” and “In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.”

Under Minn. Stat. § 325C.03, “Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss,” and “If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under paragraph (a).” Fees cut both ways under Minn. Stat. § 325C.04: “If (i) a claim of misappropriation is made in bad faith, (ii) a motion to terminate an injunction is made or resisted in bad faith, or (iii) willful and malicious misappropriation exists, the court may award reasonable attorney’s fees to the prevailing party.” An employer that brings a claim in bad faith risks paying the employee’s fees. Each claim also has a statutory filing deadline, in Minn. Stat. § 325C.06 and 18 U.S.C. § 1836(d).

The statute replaces some other claims but not the contract. Minn. Stat. § 325C.07 provides that the act displaces “conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret,” but it does not affect “contractual remedies, whether or not based upon misappropriation of a trade secret.” A claim on a signed confidentiality agreement is a contractual remedy, which the act leaves in place.

The federal claim is available when “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce” (18 U.S.C. § 1836(b)(1)). A DTSA injunction may not “prevent a person from entering into an employment relationship,” and it may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” My page on when to file a federal trade secret claim covers the federal claim.

Why should a confidentiality agreement include the federal whistleblower immunity notice?

I suggest putting the DTSA whistleblower immunity notice in every employee or contractor agreement that governs trade secrets or confidential information. The reason is that leaving it out of an agreement entered into or updated after May 11, 2016, costs the employer exemplary damages and attorney fees under the federal statute against that employee. Under 18 U.S.C. § 1833(b), “An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”

The immunity protects an individual who discloses a trade secret “in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney” solely to report or investigate a suspected violation of law, or in a court filing made under seal. Under § 1833(b)(3)(C), “If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided.” That consequence reaches only newer agreements: “This paragraph shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection,” and the subsection was enacted May 11, 2016.

Under § 1833(b)(3)(B), a cross-reference to a policy document can satisfy the notice requirement: “An employer shall be considered to be in compliance with the notice requirement in subparagraph (A) if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.” The requirement also reaches contractors: “For purposes of this subsection, the term “employee” includes any individual performing work as a contractor or consultant for an employer.” My page on confidentiality obligations after termination covers the rest of the agreement.

How should an employer cut off a departing employee’s email and system access?

I suggest disabling a departing employee’s email and system credentials on the last day and telling the employee in writing that access has ended. Both steps matter because the federal Computer Fraud and Abuse Act (CFAA) turns on whether access was authorized. The CFAA reaches anyone who “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains” information from a protected computer (18 U.S.C. § 1030(a)(2)).

The U.S. Supreme Court read the “exceeds authorized access” clause narrowly in Van Buren v. United States, 593 U.S. 374 (2021), a criminal case against a police sergeant who used his own valid login for an improper purpose. The Court reversed the Eleventh Circuit’s judgment, remanded the case, and described “a gates-up-or-down inquiry” in which “one either can or cannot access a computer system, and one either can or cannot access certain areas within the system.” It left open “whether this inquiry turns only on technological (or “code-based”) limitations on access, or instead also looks to limits contained in contracts or policies.” Turning credentials off puts a technological limit in place, so the employer’s case does not depend on that open question.

An employer can sue under the CFAA. “Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief” (§ 1030(g)). The civil action requires one of the factors the statute lists, and one of them is loss during any one-year period “aggregating at least $5,000 in value.” When a claim rests only on that loss factor, “Damages for a violation involving only conduct described in subsection (c)(4)(A)(i)(I) are limited to economic damages,” and § 1030(g) also sets a statutory filing deadline for the civil action. Loss counts costs “including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense.” In Van Buren, the Court wrote that the definitions of “damage” and “loss” “focus on technological harms,” such as “the corruption of files,” that unauthorized users cause “to computer systems and data.”

A second federal statute, the Stored Communications Act, can reach stored email. 18 U.S.C. § 2701(a) applies to anyone who “intentionally accesses without authorization a facility through which an electronic communication service is provided” or “intentionally exceeds an authorization to access that facility.” The person must thereby obtain, alter, or block access to a communication “while it is in electronic storage in such system.” Section 2701 covers only messages in “electronic storage,” which 18 U.S.C. § 2510(17) defines as temporary storage “incidental to the electronic transmission thereof” and storage by the service “for purposes of backup protection of such communication.” Under 18 U.S.C. § 2707(a), “any provider of electronic communication service, subscriber, or other person aggrieved” by a knowing or intentional violation may bring a civil action, and § 2707 also sets a statutory filing deadline.

Minnesota’s computer-crime definitions also let an owner limit authorization by notice. Minn. Stat. § 609.87, subd. 2a provides that “Authorization may be limited by the owner by” several means, including “giving the user actual notice orally or in writing.” Those definitions apply only to the state’s criminal computer statutes. I also suggest keeping the mailbox and access logs rather than deleting them, because they show what the employee opened before leaving. My page on terminated employees who keep system access covers the offboarding steps.

How can a Minnesota employer protect itself after the non-compete ban?

For a Minnesota employer, the protection that remains after the non-compete ban is built from documents and habits. The core pieces are a confidentiality agreement with the federal immunity notice and a non-solicitation agreement no broader than the business needs, supported by independent consideration when signed after the employee accepted the job. The rest are real secrecy measures for valuable information and prompt shutdown of email and system access when someone leaves. If an employee has already left with clients or data, my page on what to do when an ex-employee took clients or data covers the first steps. To have me analyze your employment agreement template or a pending departure, email [email protected] with a brief description. I run a conflict check before I analyze any confidential documents, so I suggest waiting to send the agreements until that check is done. More on these issues is on my Minnesota contracts practice page.