Can a Minnesota employer prevent a departing employee from working for a competitor? Since July 1, 2023, the answer is almost always no. Minn. Stat. § 181.988 declares that “any covenant not to compete contained in a contract or agreement is void and unenforceable.” Only two narrow exceptions survive. For employer-side workforce rules, see Minnesota Employment Law for Employers.
What Does Minnesota’s Non-Compete Ban Actually Prohibit?
The statute targets a specific category of restrictive covenant. A “covenant not to compete” is defined as any agreement restricting an employee, after termination, from “(1) performing 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 a party to the agreement” (Minn. Stat. § 181.988, subd. 1). In plain terms: if the agreement prevents someone from taking a similar job after leaving, it is banned.
The definition is deliberately broad. It covers traditional non-compete clauses in employment agreements, standalone non-compete contracts, and non-compete provisions embedded in severance packages or equity award agreements. It also applies to independent contractors, not just W-2 employees: the statute defines “employee” to include individuals whose compensation is not reported on a W-2, which means employers cannot structure around the ban by using contractor agreements.
What Restrictive Covenants Can Minnesota Employers Still Use?
The statute expressly carves out three categories from the ban. A covenant not to compete “does not include a nondisclosure agreement or an agreement designed to protect trade secrets or confidential information” and “does not include a nonsolicitation agreement” (Minn. Stat. § 181.988, subd. 1). In plain terms: employers retain three tools to protect business interests after an employee departs.
Nondisclosure agreements remain fully enforceable. Employers can prohibit departing employees from disclosing proprietary information, internal processes, pricing strategies, and other confidential business information. I advise every employer client to maintain current NDAs as the primary replacement for non-competes.
Trade secret protections under both the Minnesota Uniform Trade Secrets Act and the federal Defend Trade Secrets Act provide injunctive relief and damages when a former employee misappropriates confidential information, regardless of whether a separate agreement exists.
Non-solicitation agreements restrict departing employees from soliciting the employer’s clients, customers, or employees. These agreements must still meet reasonableness standards for scope and duration, but they are not affected by the 2023 ban. For employers who previously relied on non-competes to protect client relationships, a well-drafted non-solicitation agreement paired with an NDA covers much of the same ground.
What Are the Two Exceptions to Minnesota’s Non-Compete Ban?
The Legislature preserved non-competes in two transaction contexts. Under Minn. Stat. § 181.988, subd. 2(b), a covenant not to compete is enforceable if it is “agreed upon during the sale of a business” or “agreed upon in anticipation of the dissolution of a business,” provided in either case that the covenant is “temporary and geographically restricted” and of “reasonable” scope and duration.
These exceptions recognize that buyers of a business have a legitimate interest in preventing the seller from immediately opening a competing operation nearby. In my practice advising business owners on employment agreements and business transactions, the sale-of-business exception comes up most often in acquisition negotiations. The key requirements are that the non-compete must be time-limited, geographically bounded, and reasonable in both dimensions. A five-year, nationwide restriction on a seller of a local services business would likely fail the reasonableness test even under this exception.
The dissolution exception is narrower and applies when business partners agree to restrict competition as part of winding down a shared enterprise. Both exceptions apply only to the business transaction itself, not to rank-and-file employees of the acquired or dissolving business.
What Remedies Do Employees Have Under the Non-Compete Ban?
The statute provides meaningful enforcement mechanisms. An employee (or independent contractor) who is subjected to a void non-compete can seek injunctive relief, and “a court may award an employee who is enforcing rights under this section reasonable attorney fees” (Minn. Stat. § 181.988, subd. 2(d)). In plain terms: if an employer tries to enforce a banned non-compete, the employee can recover legal costs.
The attorney-fee provision creates a practical deterrent. Employers who send cease-and-desist letters based on post-July 2023 non-competes risk not only losing in court but paying the former employee’s legal bills. The statute also includes a choice-of-law protection: employers cannot require Minnesota-based employees to adjudicate claims outside the state or waive Minnesota law’s substantive protections. An employer who embeds a non-compete in an agreement governed by Texas or Delaware law still cannot enforce it against a Minnesota employee.
For employers holding pre-2023 non-compete agreements, the analysis is different. The statute applies to agreements “entered into on or after” the effective date. Legacy non-competes remain subject to the traditional common-law reasonableness standard, which evaluates duration, geographic scope, and whether the restriction protects a legitimate business interest such as trade secrets or substantial customer relationships.
How Should Minnesota Employers Protect Business Interests Without Non-Competes?
The practical shift for employers is from restricting where employees work to restricting what they take and whom they contact. I advise employers to build a three-layer protection strategy:
First, maintain a strong confidentiality agreement that clearly defines proprietary information, establishes return-of-materials obligations, and survives termination. This is the foundation.
Second, implement non-solicitation agreements tailored to each role. A salesperson’s non-solicitation should cover the specific accounts they managed; a blanket prohibition on contacting “any client of the company” is more likely to face a reasonableness challenge.
Third, invest in operational protections: access controls on sensitive systems, documented onboarding and offboarding procedures, and exit interviews that remind departing employees of their continuing obligations. Courts are more likely to enforce post-employment restrictions when the employer can demonstrate it treated the information as genuinely confidential during the employment relationship.
Minnesota employers who relied heavily on non-competes before 2023 should audit their existing employment agreements and replace void provisions with enforceable alternatives. The cost of updating agreements is minimal compared to the risk of attempting to enforce a void restriction and paying the former employee’s attorney fees in the process.
For guidance on broader employment compliance, see Minnesota Employment Law for Employers or email [email protected].