Does the Minnesota Noncompete Ban Affect Contracts Signed Before January 1st, 2023?

Video Transcript:

No, it doesn’t. There was a huge law passed in Minnesota that banned noncompete agreements in all sorts of circumstances, both for independent contractors and employees. But this law specifically said it only applies to contracts signed on July 1st, 2023, and later. Any prior signed noncompete agreement remains enforceable under the old law. Now the extent that this new ban will stay is open to a lot of questions. This ban was so broad and so extreme that I believe it is likely the legislature will revise it and tighten up some of the problems that are created by this ban.

I will give you an example. Let’s say that a news outlet, let’s say KARE11 News wants to hire a new newscaster and says, “You know what, we want you to agree that if we build your personal brand and we talk about your name and we feature you, you are not going to go over to FOX9 news. Well, currently, under the noncompete ban, if the KARE11 News employee signed a noncompete, that provision would be void and unenforceable, and after KARE11 builds a lot of name recognition and brand awareness with that newscaster, maybe even makes that newscaster an anchor on the evening news, that newscaster could now negotiate with FOX9 to get a job that pays a lot more than KARE11 would pay and the noncompete agreement that the newscaster signed is not enforceable under Minnesota law.

So what is KARE11 to do? Well, what it ends up doing is being very careful about not putting a whole lot of brand building in a particular personality because that personality could transition to a competitor at any time. It forces KARE11 to focus more on building its brand and less on the individuals involved. There are other scenarios where a company might want to hire a person to be a spokesperson, and they want to make sure that spokesperson won’t go to a competitor. Well, right now, that is essentially a prohibited act because you can’t prevent a person from competing. That noncompete agreement is simply not enforceable. So I expect that is one of many examples of the type of tweaks we will see in the law so that when a person is hired as a spokesperson for a company, the noncompete will be enforceable under certain reasonable limitations.

2023 Law Language

Here is the language of the 2023 law that went into effect on July 1, 2023, amending Minnesota Statutes § 181.988:

Minnesota Statutes section 181.988: Covenants Not to Compete Void in Employment Agreements; Substantive Protections of Minnesota Law Apply

Subdivision 1. Definitions

(a) “Covenant not to compete” means an agreement between an employee and employer that restricts the employee, 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 party to the agreement.

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.

(b) “Employer” means any individual, partnership, association, corporation, business, trust, or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee.

(c) “Employee” as used in this section means any individual who performs services for an employer, including independent contractors.

(d) “Independent contractor” means any individual whose employment is governed by a contract and whose compensation is not reported to the Internal Revenue Service on a W-2 form. For purposes of this section, independent contractor also includes any corporation, limited liability corporation, partnership, or other corporate entity when an employer requires an individual to form such an organization for purposes of entering into a contract for services as a condition of receiving compensation under an independent contractor agreement.

Subd. 2. Covenants not to compete void and unenforceable

(a) Any covenant not to compete contained in a contract or agreement is void and unenforceable.

(b) Notwithstanding paragraph (a), a covenant not to compete is valid and enforceable if:

(1) the covenant not to compete is agreed upon during the sale of a business. 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 that 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; or

(2) the covenant not to compete is agreed upon in anticipation of the dissolution of a business. The partners, members, or shareholders, upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation 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.

(c) 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.

(d) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing rights under this section reasonable attorney fees.

Subd. 3. Choice of law; venue

(a) 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:

(1) require the employee to adjudicate outside of Minnesota a claim arising in Minnesota; or

(2) deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.

(b) Any provision of a contract or agreement that violates paragraph (a) 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.

(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing rights under this section reasonable attorney fees.

(d) For purposes of this section, adjudication includes litigation and arbitration.

(e) This subdivision applies only to claims arising under this section.

Effective Date

This section is effective July 1, 2023, and applies to contracts and agreements entered into on or after that date.