Minnesota Law for Staffing and Recruiting Firms

How does Minnesota’s no-hire ban work for staffing firms and their customers?

A staffing firm, or any other service provider, may not restrict a Minnesota customer from soliciting or hiring the firm’s workers. The ban covers contractors as well as employees, and its only exemption is for certain software consultants placed on a temp-to-perm track.

The operative sentence is Minn. Stat. § 181.9881, subd. 2(a): “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.” Three features make it broad. “In any way” reaches more than an outright prohibition. “Directly or indirectly” means the ban is not limited to a customer’s own direct solicitation or hire. And the statute defines “employee” as “any individual who performs services for a service provider, including independent contractors” (subd. 1(b)), so moving workers to 1099 status does not take them outside it.

The exemption, in subd. 3, is narrow. The 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.” An industrial, clerical, or light-industrial placement does not fit it, and neither does a software contractor with no permanent-hire track. The same kind of clause appears outside staffing, and the rules for no-hire clauses in other business-to-business contracts differ when no service provider is involved.

When does the ban reach staffing contracts signed before July 2024?

The statute and its effective-date clause point in different directions for contracts signed before July 1, 2024. The statute voids violating provisions “of an existing contract,” while the session law says the section applies to contracts entered into on or after that date.

Minn. Stat. § 181.9881, subd. 2(b) says: “Any provision of an existing contract that violates paragraph (a) is void and unenforceable.” Subdivision 2(c) adds a duty for the staffing firm: “When a provision in an existing contract violates this section, the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section.” The enacting law, 2024 Minn. Laws ch. 110, art. 2, sec. 12, says: “This section is effective July 1, 2024, and applies to contracts and agreements entered into on or after that date.”

A customer relying on an older contract will point to subdivision 2(b); a staffing firm enforcing one will point to the effective-date clause. I suggest updating your template now rather than relying on a legacy clause, and sending the subdivision 2(c) notice to workers covered by any older agreement that still carries a no-hire term, since the notice costs little and the statute’s text calls for it.

What are the rules for conversion fees in Minnesota?

Minnesota’s general no-hire statute does not mention conversion fees, so whether a fee survives depends on whether it restricts the customer’s hire “in any way.” For nurse staffing in the licensed health care facilities a separate statute lists, that statute bars permanent-hire fees outright.

Minn. Stat. § 181.9881, subd. 2(a) bars a service provider from acting to “restrict, restrain, or prohibit in any way” a customer’s hiring. It does not use the words fee, conversion, or liquidated damages. A customer resisting a fee will argue that a charge triggered only by hiring your worker is a restraint on hiring. A staffing firm will answer that the customer remains free to hire and is paying for a recruiting service it received. I have not found a Minnesota appellate decision applying the statute to a conversion fee, so the text is all either side has.

The contrast with health-care staffing matters here. Minn. Stat. § 144A.72, subd. 1(a)(5) says a supplemental nursing services agency “must not, in any contract with any employee or health care facility, require the payment of liquidated damages, employment fees, or other compensation should the employee be hired as a permanent employee of a health care facility.” When the legislature wanted to ban fees by name, it said so.

If you keep a conversion fee outside health care, I suggest structuring it as payment for a defined service rather than a penalty: a fee stated at signing, tied to recruiting and screening work, and declining as the worker’s hours on assignment grow. A fee that grows with time on assignment, or that is large enough that no customer would pay it, gives the customer a stronger restraint argument. No structure removes the risk while I have found no Minnesota appellate decision applying the statute to fees.

What are the rules for health-care staffing agencies in Minnesota?

A business that places temporary nurses, nursing assistants, nurse aides, or orderlies in the Minnesota health care facilities the statute lists must register with the commissioner of health every year, with a separate registration for each location, and meet conditions that go beyond the general no-hire ban. The conditions include a ban on restricting employees’ job opportunities, a ban on permanent-hire fees, and a W-2 requirement.

The statute calls these businesses supplemental nursing services agencies, defined in Minn. Stat. § 144A.70, subd. 6 as a business “engaged for hire in the business of providing or procuring temporary employment in health care facilities for nurses, nursing assistants, nurse aides, and orderlies.” The definition carves out two cases: it “does not include an individual who only engages in providing the individual’s services on a temporary basis to health care facilities,” and it “does not include a professional home care agency licensed under section 144A.471 that only provides staff to other home care providers.” “Health care facility” is itself defined, in subd. 4, as “a hospital, boarding care home, or outpatient surgical center licensed under sections 144.50 to 144.58; a nursing home or home care agency licensed under this chapter; an assisted living facility licensed under chapter 144G; or a board and lodging establishment that is registered to provide supportive or health supervision services under section 157.17.” Under Minn. Stat. § 144A.71, subd. 1, “A person who operates a supplemental nursing services agency shall register annually with the commissioner,” and “Each separate location of the business of a supplemental nursing services agency shall have a separate registration.” The application must include, among other items, “documentation that the supplemental nursing services agency has insurance coverage for workers’ compensation for all nurses, nursing assistants, nurse aides, and orderlies provided or procured by the agency” (subd. 2(6)).

The conditions of registration in Minn. Stat. § 144A.72, subd. 1(a) that most affect contracts are:

1. The agency “must not restrict in any manner the employment opportunities of its employees,” with a possible fine of $3,000 for a violation (clause (4)).
2. The agency may not require liquidated damages, employment fees, or other compensation if a health care facility hires the employee permanently, also with a possible $3,000 fine (clause (5)).
3. The agency “shall document that each temporary employee provided to health care facilities is an employee of the agency and is not an independent contractor” (clause (6)).

For an agency that supplies nursing homes, Minn. Stat. § 144A.74 also caps the price: the agency “must not bill or receive payments from a nursing home licensed under this chapter at a rate higher than 150 percent of the sum of the weighted average wage rate, plus a factor determined by the commissioner to incorporate payroll taxes,” and “The maximum rate must include all charges for administrative fees, contract fees, or other special charges in addition to the hourly rates for the temporary nursing pool personnel supplied to a nursing home.” Travel and housing sit outside that cap: “A nursing home that pays for the actual travel and housing costs for supplemental nursing services agency staff working at the facility and that pays these costs to the employee, the agency, or another vendor, is not violating the limitation on charges described in this section.”

Beyond the fines, “Failure to comply with this section shall subject the supplemental nursing services agency to revocation or nonrenewal of its registration. Violations of section 144A.74 are subject to a fine equal to 200 percent of the amount billed or received in excess of the maximum permitted under that section” (§ 144A.72, subd. 2). The 2026 Legislature added a records-access rule to that subdivision (2026 Minn. Laws ch. 95, art. 3, sec. 9): “The commissioner may request and must be given access to relevant information, records, incident reports, or other documents in the possession of a registered supplemental nursing services agency if considered necessary by the commissioner for verification purposes. If access is denied, the commissioner may bring enforcement action.” For a health-care staffing owner, that makes clean personnel and contract files a registration issue.

How do Minnesota’s noncompete and unemployment rules shape agreements with temps?

A staffing firm may not bind its own workers to a clause that keeps them from working for a customer, or anyone else, for a set period after the job ends, because Minnesota voids covenants not to compete. Confidentiality and customer non-solicitation terms survive, and Minnesota’s staffing-service quit rule for unemployment applies only if, at the start of employment, the worker “signed and was provided a copy of a separate document” explaining the rule.

The noncompete ban in Minn. Stat. § 181.988, subd. 2(a) is short: “Any covenant not to compete contained in a contract or agreement is void and unenforceable.” A covenant not to compete is an agreement that “restricts the employee, after termination of the employment, from performing” work, including “work for another employer for a specified period of time” (subd. 1(a)), and “employee” again includes “independent contractors” (subd. 1(c)). A temp agreement that bars the worker from taking a job with the customer for six months after leaving your firm fits that definition. The ban reaches agreements signed on or after July 1, 2023; the enacting law says it “applies to contracts and agreements entered into on or after that date” (2023 Minn. Laws ch. 53, art. 6, sec. 1). A worker who challenges it may recover “reasonable attorney fees” (subd. 2(d)).

The same definition says what survives: “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.” So you may still keep a recruiter from walking out with your customer list. The broader set of protections that survive Minnesota’s noncompete ban is the toolkit for your internal sales and recruiting staff.

The unemployment rule is specific to staffing. Under Minn. Stat. § 268.095, subd. 2(e), “An applicant has quit employment with a staffing service if, within five calendar days after completion of a suitable job assignment from a staffing service, the applicant” fails without good cause to ask for another suitable assignment, refuses one without good cause, or “accepts employment with the client of the staffing service.” That last clause carries its own limit: “Accepting employment with the client of the staffing service meets the requirements of the exception to ineligibility under subdivision 1, clause (2).” The rule “applies only if, at the time of beginning of employment with the staffing service, the applicant signed and was provided a copy of a separate document written in clear and concise language that informed the applicant of this paragraph and that unemployment benefits may be affected.” I suggest making that separate notice a fixed step in onboarding, with a record that the worker signed it and received a copy, because the rule applies only if the applicant “signed and was provided a copy of” it.

How is wage liability split between a staffing firm and its customer?

Minnesota and federal wage laws both define “employer” to include any person acting directly or indirectly in the interest of an employer in relation to an employee, and whether a staffing customer fits that definition turns on facts the definitions do not spell out. Between the two companies, the service agreement decides who bears the cost.

The Minnesota Fair Labor Standards Act defines “employer” in Minn. Stat. § 177.23, subd. 6 to include “any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee.” The federal Fair Labor Standards Act uses nearly the same words: ““Employer” includes any person acting directly or indirectly in the interest of an employer in relation to an employee” (29 U.S.C. § 203(d)). Whether a particular customer counts turns on facts the definitions do not spell out, which is why co-employment claims are a standing risk in this industry.

The temp is not a party to the service agreement. What the agreement can do is allocate the cost between you. I suggest a service agreement that states:

1. Which company sets schedules, tracks hours, and approves overtime.
2. That the staffing firm pays wages, withholds taxes, and carries workers’ compensation, and that the customer reports hours accurately and on time.
3. Mutual indemnity tied to each company’s own duties, backed by insurance with limits that match the placement volume.

Minnesota’s wage theft law raises the stakes on the payroll side, so the hours-reporting clause deserves the same attention as the price.

What makes a staffing firm’s use of contractors a misclassification risk?

Minnesota bars a business from treating an employee as an independent contractor, and from asking the worker to sign papers calling them a contractor, with penalties of up to $10,000 per worker and per violation. A staffing model built on 1099 workers who take direction like employees carries that risk at scale.

Minn. Stat. § 181.722, subd. 1(a) makes it unlawful to “fail to classify, represent, or treat an individual who is the person’s employee pursuant to subdivision 3 as an employee,” and to “require or request an individual who is the person’s employee pursuant to subdivision 3 to enter into any agreement or complete any document that misclassifies, misrepresents, or treats the individual as an independent contractor.” The contractor agreement itself can be a separate violation. Status is decided “using the same tests and in the same manner as employee status is determined under the applicable workers’ compensation and unemployment insurance program laws and rules” (subd. 3); Minnesota’s employee-versus-contractor test explains how they apply.

The penalties in subd. 4(a) include “a penalty of up to $10,000 for each individual the person failed to classify, represent, or treat as an employee” and “a penalty of up to $10,000 for each violation of subdivision 1,” on top of compensatory damages to the worker. Owners carry personal exposure too: an owner, officer, or agent “who knowingly or repeatedly engaged in any of the prohibited activities in this subdivision may be held individually liable” (subd. 1(b)). For health-care staffing, the question is already answered: the W-2 requirement in § 144A.72 described above.

What are the rules for recruiting and search firm fees?

A Minnesota employer may not require a candidate placed by a search firm to pay any part of the search firm’s fee. A search firm stays outside the state’s employment-agency rules only if it meets all four statutory conditions: it is paid only by the employer, no candidate ever owes it a fee, it does not recruit placed people away from the employers it placed them with, and it does no other employment-agency work.

The fee rule is Minn. Stat. § 184.22, subd. 7: “No employer may require any job candidate placed with the employer by a search firm to pay, directly or indirectly, all or part of the search firm’s fee.” The words “directly or indirectly” mean the bar is not limited to a direct charge to the candidate. If your client wants to recover the fee when a hire leaves early, the place to negotiate that is your replacement guarantee with the client, not a promise from the candidate.

Under § 184.22, subd. 6(a), the employment-agency provisions of chapter 184 do not apply to a search firm that meets four conditions, including that it “is retained by, acts on behalf of, and is only compensated by the employer, pursuant to a written or oral agreement specifying the position to be filled,” and that “in no instance does the search firm or its agents solicit, persuade, or induce any individual to terminate employment with an employer with whom the search firm has placed that individual.” The second condition means a recruiter who places a candidate and later recruits that same person away from the client puts the firm’s exempt status at risk. The subdivision that once required an employment-agency license was repealed in 2015; the subdivision 6 conditions for search firms remain in the statute.

Under § 181.9881, a Minnesota customer is free to hire the people a staffing firm places, so the firm’s protection now has to come from price and contract terms rather than hiring restrictions, and § 144A.74 caps what a supplemental nursing services agency may charge a nursing home. For most firms the practical work is a template review: the no-hire clause, the conversion fee, the worker agreement, the unemployment notice, and the indemnity terms, checked against the statutes above. More on these rules sits with the rest of employment law for Minnesota businesses on this site. If you would like Aaron Hall to look over your staffing or recruiting agreements against these statutes, email [email protected] with a brief description and the current templates.