As of July 1, 2023, noncompete agreements will be illegal in Minnesota. This means that employers will no longer be able to require employees to sign agreements that restrict their ability to work for a competitor or start their own business after leaving their job.

The new law was passed by the Minnesota legislature in May 2023. It was signed into law by Governor Tim Walz on May 24, 2023.

The law prohibits all noncompete agreements, regardless of the employee’s job title, salary, or level of responsibility. There are a few exceptions to the ban. For example, noncompete agreements are still allowed in the sale of a business, and in cases where the employer has a legitimate business interest in protecting trade secrets or confidential information.

The new law is a major victory for employee rights advocates. They have long argued that noncompete agreements are unfair to employees, and that they stifle innovation and economic growth.

Employers who currently have noncompete agreements in place will need to update their policies and procedures. They will also need to review any existing agreements with their employees to make sure they are in compliance with the new law.

Employees who have signed noncompete agreements should not assume that they are no longer enforceable. The new law does not invalidate existing agreements, but it does make it more difficult for employers to enforce them.

If you are an employee or an employer in Minnesota, you should consult with an attorney to discuss the new law and how it may affect you.

Here are some of the key things to know about the new law:

  • Noncompete agreements are now illegal in Minnesota.
  • There are a few exceptions to the ban, such as in the sale of a business or when the employer has a legitimate business interest in protecting trade secrets or confidential information.
  • Employers who currently have noncompete agreements in place will need to update their policies and procedures.
  • Employees who have signed noncompete agreements should not assume that they are no longer enforceable.

Conclusion

The new law prohibiting noncompete agreements in Minnesota is a major victory for employee rights advocates. The law will make it easier for employees to move to new jobs and start their own businesses, which will promote innovation and economic growth. Employers who currently have noncompete agreements in place will need to update their policies and procedures to comply with the new law. Employees who have signed noncompete agreements should consult with an attorney to discuss whether the agreement is still enforceable under the new law.

The new law is a positive step for employees in Minnesota, but it is important to note that there are still some exceptions to the ban on noncompete agreements. For example, noncompete agreements are still allowed in the sale of a business, and in cases where the employer has a legitimate business interest in protecting trade secrets or confidential information.

If you are an employee or an employer in Minnesota, it is important to understand the new law and how it may affect you. You should consult with an attorney to discuss your specific situation.

Video Transcript

Are Noncompete Agreements Illegal in Minnesota?

Well, you may have heard in 2023, most noncompete agreements were banned by the Minnesota legislature if they are created after July 1st, 2023, and they relate to employment or independent contractors.

Minnesota is joining California, North Dakota, Oklahoma, and Washington, DC; at least, those are the states that I know of that have banned virtually all employment, noncompete agreements. This is huge for Minnesota. It is huge because, for years, people have relied on noncompete agreements as a way to entrust somebody with confidential information, knowing that they can’t use that to compete against an employer later. Whatever your position is on whether noncompetes should be illegal, that is kind of a side. They now are in Minnesota. There are some exceptions.

What Are the Exceptions?

Well, first, there is an exception for the sale of a business like business owners. There is an exception for merging and dissolving a business, but all of that has to do with the business owners. It is not related to the individual employees.

Now, one of the real concerning areas of this law is the fact that it applies to independent contractors. Well, what does that mean? Because if you think about it, any contract with another party makes the parties independent contractors unless they are employees. I think the legislature meant to apply this not just to employees but individuals who provide services for the business who are independent contractors, but by including all Minnesota independent contractors. There is no exception for big businesses who have contracts together.

I mean, look at it this way. If Apple and Google have a contract that they are going to engage in a particular effort together and that they will agree not to compete in that space, those are independent contractors, and if they are doing business in Minnesota, at least a significant amount of business, there is an argument that that applies to them. So the courts have yet to figure out what to do about this, and in my experience, lobbying the Minnesota legislature, it is quite common for legislation to get through initially and then get cleaned up in subsequent legislative sessions.

So it certainly is possible that in 2024 or 2025, you might have some clarity provided on these issues. And if you don’t, ultimately, it is going to be up to the Minnesota Supreme Court to decide what qualifies as an independent contractor, especially as it relates to large companies who agree not to compete with each other.

Will those agreements be enforceable, or are they banned? To learn more about this, we will have a link in the description below. So just to summarize, all Minnesota noncompete agreements started from July 1st, 2023, onward are banned in Minnesota. The ban applies to independent contractors according to the statute, and there are a couple of exceptions for essentially buyers and sellers of a business or business owners dissolving their company.

What Isn’t Included in the Minnesota Noncompete Ban?

Confidentiality agreements are still enforceable, and that means like a non-disclosure agreement where parties agree to keep something confidential. In other words, they have to keep it confidential, but they can still compete with that knowledge in their head.

What Are Non-solicitation Agreements?

The second exception to the Minnesota noncompete agreement ban is non-solicitation agreements. It is when parties agree not to solicit the employees or vendors, or customers of a company. So let’s say Emily works for a company and she signs a non-solicitation agreement that says for one year after leaving the company, she will not solicit the employees, clients, customers, patients, or other relationships of the company. And then Emily leaves, and she goes to another employer. Under that non-solicitation agreement, she would be prohibited from soliciting those relationships even though she could still compete in the marketplace. Because although noncompete agreements are banned, non-solicitation agreements remain enforceable.

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