Noncompete Agreement FAQ for Minnesota Employees & Employers

What Changed with Minnesota Noncompete Law in 2023?

Effective July 1, 2023, most new noncompete agreements are void and unenforceable in Minnesota under Minn. Stat. § 181.988. If you are an employee, employer, or independent contractor in Minnesota, this was a significant change. The Minnesota Legislature banned nearly all new noncompete agreements. Any noncompete provision contained in a contract or agreement entered into on or after July 1, 2023, is void and unenforceable. But there are two exceptions:

• when selling a business, the buyer and seller can agree to a noncompete, and
• business owners can agree not to compete with each other as part of dissolving a business.

This page explains in more detail below the ban on most noncompete agreements and when noncompete agreements are still permitted in Minnesota.

Keep in mind that noncompete agreements entered into before July 1, 2023, are not affected by the new law and remain governed by prior Minnesota common law.

Which Noncompete Agreements Are Banned in Minnesota?

Nearly all new noncompete agreements entered into on or after July 1, 2023, are banned. The law, enacted as 2023 Minn. Laws ch. 53 (S.F. No. 3035), was signed by Governor Walz on May 24, 2023, and is codified at Minn. Stat. § 181.988.

The ban does not apply to

1. noncompete agreements entered into before July 1, 2023,
2. noncompete agreements between the buyer and seller in the sale of a business, and
3. noncompete agreements among business owners in anticipation of dissolving a business.

The ban also did not alter nonsolicitation agreement provisions or confidentiality agreement provisions. The statute expressly excludes from the definition of a “covenant not to compete” any nondisclosure agreement, any agreement designed to protect trade secrets or confidential information, and any nonsolicitation agreement or agreement restricting the ability to use client or contact lists or solicit the employer’s customers. Minn. Stat. § 181.988, subd. 1(a). Those restrictive covenants remain legal and enforceable even for relationships formed on or after July 1, 2023.

Ban on Independent Contractor Noncompete Agreements

The 2023 law is broad. The ban is not limited to employment relationships: the statute defines “employee” to include independent contractors, and any covenant not to compete contained in a contract is void and unenforceable, so a covenant not to compete with an independent contractor entered into on or after July 1, 2023, is also void. Minn. Stat. § 181.988, subds. 1(c), 2(a).

The statute also closes an obvious workaround. It defines an “independent contractor” as “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,” and it reaches “any corporation, limited liability corporation, partnership, or other corporate entity when an employer requires an individual to form such an organization . . . as a condition of receiving compensation under an independent contractor agreement.” Minn. Stat. § 181.988, subd. 1(d). In other words, if you require a worker to contract through an LLC or corporation as a condition of the engagement, the ban still applies. You cannot dodge it by that structure.

Exception for Business Owners Selling or Dissolving a Business

The law has an important exception for the sale of a business or business owners who sell their ownership in the company. In this context, a noncompete agreement is enforceable. Specifically, the law provides:

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.

Minn. Stat. § 181.988, subd. 2(b).

No Exception for Executives & Highly Paid Employees

Unlike other states, Minnesota’s new ban does not provide any exceptions for CEOs, executives, or senior leadership. For example, this means that Honeywell or 3M cannot hire a CEO with an agreement that the CEO will not compete for a period of time after leaving the corporation. The statute’s only exceptions are the sale of a business and the anticipated dissolution of a business, and none is keyed to an employee’s title, seniority, or compensation. Minn. Stat. § 181.988, subds. 1(c), 2.

No Exception for Spokespersons or High-Visibility Employees

Minnesota’s new ban does not provide any exceptions for news anchors, spokespersons, or other highly visible employees.

In the past, a television news station could require their key news anchors to sign a noncompete agreement that prevents the news anchor from going to a close competitor in the same geographic area. For example, KARE 11 might require Julie Nelson to agree she won’t work for WCCO TV for two years after leaving KARE 11. The noncompete agreement would only let Julie Nelson compete in another market, such as at TV station in Chicago or New York. But under the current law, such noncompetes are banned. That is, KARE 11 could not enter into a contract preventing a news anchor from going to another local news competitor.

No Exception for Business-to-Business Noncompete Agreements

Minnesota’s ban contains no general exception for contracts between corporations or other businesses, large or small. At the same time, the ban does not sweep in every commercial contract merely because a contract exists. The statutory definition of “independent contractor” is narrow: it reaches a non-W-2 individual service provider, and it reaches a corporation, LLC, or partnership only when an employer requires an individual to form that entity as a condition of a services contract. Minn. Stat. § 181.988, subd. 1(d). The ban keys on an individual’s employment-like service relationship, not on the presence of a contract, so ordinary arm’s-length agreements with vendors, suppliers, brokers, or sales-representative companies are not banned simply because the parties signed a contract.

Minnesota did extend restrictive-covenant reform into the business-to-business context in a separate 2024 statute. Effective July 1, 2024, Minn. Stat. § 181.9881 makes “restrictive employment covenants” void and unenforceable in service contracts: a service provider may not restrict a customer from directly or indirectly soliciting or hiring the service provider’s employees, and any such provision in an existing contract is void and unenforceable. That section borrows the same independent-contractor definition and carries a narrow exemption for certain computer-software-consulting staffing arrangements. It is a distinct statute, not an amendment to section 181.988, but it is the closest the Legislature has come to the business-to-business cleanup that was anticipated when the 2023 ban passed.

No Exception for Fiduciary Duty Relationships

Minnesota’s new law has the potential to create a conflict with Minnesota fiduciary duty law. Aside from exceptions in the statute (listed above), Minnesota’s noncompete ban appears to expressly prohibit all noncompete agreements between business partners, partnerships, joint ventures, other principal-agent relationships, and complex business structures involving fiduciary duties. But such an interpretation would sit uneasily with the preference Minnesota has for implied fiduciary duties, such as the duty of loyalty and the duty not to compete in principal-agent relationships. As of now, no published Minnesota appellate decision has construed section 181.988, so this conflict has not been resolved by the courts, and the statute does not displace those common-law fiduciary duties, which survive the noncompete ban independently.

Below is the language of the new law restricting most noncompete agreements in Minnesota.

Minnesota Statutes section 181.988 (2023 Minnesota Senate Bill, SF 3035)

Minn. Stat. § 181.988 provides:

Section 1. Covenants Not to Compete Void in Employment Agreements; Substantive Protections of Minnesota Law Apply.

Subd. 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. (2023 Minn. Laws ch. 53, art. 6, § 1.)

Source: Minnesota Legislature

When Are Noncompete Agreements Still Permitted in Minnesota?

Noncompete agreements signed before July 1, 2023, remain enforceable under prior law, and the statute carves out exceptions for business sale and dissolution transactions.

Overview of Noncompete Law Before the 2023 Ban

A noncompete agreement may go by many names: noncompete clause (NCC), covenant not to compete (CNC), do not compete agreement, restrictive covenant, non-solicitation agreement, or whatever title an attorney gives it. Regardless of the title, the intent is the same: one party wants to prevent another party from competing. Whether a noncompete agreement is enforceable depends on a number of factors to be analyzed by an attorney. These factors include:

Independent Consideration

Was the restricted party (the one who cannot compete) paid independent consideration (compensation) for signing the noncompete agreement? In most circumstances, this consideration is financial compensation, but training and promotions can sometimes be sufficient.

Geographic Limitation

Is the geographic limitation in the noncompete agreement reasonable or too broad? This depends on the type of business. Local businesses are narrow, and international businesses are broad. Under the pre-2023 common law, a noncompete’s restrictions, including its geographic scope, could be no broader than necessary to protect the employer’s legitimate interest, and a restriction broader than necessary was generally held to be invalid. Schmit Towing, Inc. v. Frovik, No. A10-362, 2010 WL 4451572 (Minn. Ct. App. Nov. 9, 2010). For example, a hair salon with most clients in a five-mile radius could not enforce a noncompete covering the entire United States. Note, however, that for agreements entered into on or after July 1, 2023, geographic tailoring no longer saves an employment noncompete: it is void regardless of how narrowly the geography is drawn. The reasonable-geography requirement now operates only within the two surviving exceptions, the sale of a business and the anticipated dissolution of a business, where the statute requires a “reasonable geographic area.” Minn. Stat. § 181.988, subd. 2.

Enforcement Period

How long is the noncompete agreement in force after the employment relationship is terminated? Under the pre-2023 common law, the duration, like every other term, could be no broader than necessary to protect the employer’s legitimate interest, and a restriction broader than necessary was generally held to be invalid. Schmit Towing, Inc. v. Frovik, No. A10-362, 2010 WL 4451572 (Minn. Ct. App. Nov. 9, 2010). For agreements entered into on or after July 1, 2023, duration no longer matters for an employment noncompete: it is void regardless of length. The statute preserves a “reasonable length of time” restriction only in the sale-of-business exception; the dissolution exception is bounded only by a reasonable geographic area, with no durational limit in its text. It fixes no set period, so reasonableness under the circumstances governs rather than any specific term such as ten years. Minn. Stat. § 181.988, subd. 2. For more on timing considerations, see when noncompete agreements expire. Before you ignore a noncompete agreement, you should consult with an attorney to analyze the contract. An attorney can give you a legal opinion regarding whether the noncompete is enforceable. The consequences of breaching a noncompete agreement may include a temporary restraining order preventing you from working in violation of the noncompete along with a lawsuit for monetary damages.

Are Employee Noncompete Agreements Enforceable in Minnesota?

For pre-ban agreements (signed before July 1, 2023), an employee noncompete presented after the employment relationship began is enforceable only if it is supported by independent consideration; a covenant ancillary to the initial hire needs no separate consideration. National Recruiters, Inc. v. Cashman, 323 N.W.2d 736 (Minn. 1982).

Often, employers want to prevent an employee from competing with the employer at another company. The employer has to offer something to the employee (this is called “consideration”). Usually, the consideration an employer gives is (1) the job offer to a new employee or (2) a payment to an existing employee. Payments of $500 are usually sufficient, but $1 is probably not. Sometimes, “ongoing employment” can be considered consideration (see below). If there is no consideration, the noncompete agreement is not enforceable. If there is consideration, the next question is whether the geographic limitation is reasonably calculated to protect a legitimate interest of the employer or whether the geographic limitation is overly broad. This depends on the facts, looking at the business operations and market of the employer. The final question is whether the duration of the noncompete is reasonable. This also is done on a case by case basis. The courts weigh many factors, and this area of law continues to evolve, so experienced noncompete attorneys are often needed to determine whether a pre-ban noncompete agreement is enforceable, and if so, to what extent.

What is Involved in Drafting a Noncompete Agreement that is Enforceable?

The laws involving noncompete agreements varies across the United States. A noncompete agreement that is enforceable in one state may not be enforceable in another. For this reason, understanding Minnesota law is important. Also, noncompete contract forms purchased on the internet may be inadequate for parties in Minnesota. When I draft a noncompete agreement, the process involves carefully applying relevant Minnesota law to ensure the contract remains enforceable. Properly written noncompete agreements are routinely enforced by courts in Minnesota. Mistakes can void the agreement. This drafting discussion applies only to the covenants Minnesota still permits, however. For an employment or independent-contractor relationship formed on or after July 1, 2023, no amount of careful drafting can make a noncompete enforceable, because the covenant is void under Minn. Stat. § 181.988, subd. 2; careful drafting now governs only pre-ban agreements and the statutory sale-of-business and dissolution exceptions. For this reason, you should consult with an attorney if you need a noncompete agreement drafted.

Is ‘Ongoing Employment’ Sufficient ‘Consideration’ to Make a Noncompete Enforceable?

In some cases, an employee’s continued employment can be sufficient consideration even though the employee did not sign the noncompete when starting and was never paid separately for signing it, but only where, on the facts of each case, the continued employment provides the employee real advantages. The controlling authority is the Minnesota Supreme Court’s decision in Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130-31 (Minn. 1980). There, Richard Davies’s ten years of continued employment, advancement to a selling position, informal training, license-application support, and sole responsibility for many customers supplied adequate consideration, while a co-employee who was shown the agreement eleven days after starting and received no substantial post-signing benefit had inadequate consideration and his covenant was unenforceable. As the court put it, “[t]he adequacy of consideration for a noncompetition contract or clause in an ongoing employment relationship should depend on the facts of each case,” and “[m]ere continuation of employment as consideration could be used to uphold coercive agreements.” The continued employment must be bargained for and provide real advantages; it is not automatically enough.

The Minnesota Court of Appeals later applied this rule in Satellite Industries, Inc. v. Keeling, 396 N.W.2d 635, 639 (Minn. Ct. App. 1986), and in the unpublished decision Witzke v. Mesabi Rehabilitation Services, Inc., No. A07-0421, 2008 WL 314585 (Minn. Ct. App. Feb. 5, 2008), where seventeen years of continued employment with advancement supplied sufficient consideration.

A separate, bargained-for payment also works. In the unpublished decision Tenant Construction, Inc. v. Mason, No. A07-0413, 2008 WL 314515 (Minn. Ct. App. Feb. 5, 2008), the court affirmed enforcement of a mid-employment noncompete where the employer paid the employee a bargained-for $500 to sign, noting that $500 was not an insignificant sum and provided a “real” advantage, and adding that continued employment, while perhaps not sufficient alone, also indicated adequate consideration.

These unpublished Court of Appeals decisions are not precedential (Minn. R. Civ. App. P. 136.01, subd. 1(c)); they illustrate the rule the published Davies and Satellite Industries cases established. This consideration doctrine governs only noncompetes entered into before July 1, 2023. For any employment covenant entered into on or after that date, Minn. Stat. § 181.988 makes the covenant void and unenforceable regardless of consideration.

Are Independent Contractor Noncompete Agreements Enforceable?

The answer now depends on when the agreement was signed. For any independent-contractor noncompete entered into on or after July 1, 2023, the agreement is void and unenforceable: Minn. Stat. § 181.988 makes covenants not to compete void and expressly defines a covered “employee” to include independent contractors.

For agreements signed before that date, prior common law controls. A noncompete that is not ancillary to the parties’ initial bargain, meaning it was presented after the relationship began, is enforceable only if supported by independent consideration. National Recruiters, Inc. v. Cashman, 323 N.W.2d 736 (Minn. 1982). In the unpublished decision Schmit Towing, Inc. v. Frovik, No. A10-362, 2010 WL 4451572, at *3 (Minn. Ct. App. Nov. 9, 2010), the Court of Appeals declined to apply the post-employment independent-consideration requirement to an independent contractor and remanded for the district court to analyze the agreement under the legal principles that generally govern noncompete agreements. As an unpublished opinion, Schmit Towing is not precedential (Minn. R. Civ. App. P. 136.01, subd. 1(c)).

Are Attorney, Doctor, Dentist, Accountant and Veterinarian Noncompete Agreements Enforceable?

Recently, I have represented a number of professionals who were bound to noncompete agreements. Here are the general principles for each profession.

Attorney Noncompete

Under Minn. R. Prof. Conduct 5.6, a lawyer may not offer or make any partnership, shareholder, operating, employment, or similar agreement that restricts a lawyer’s right to practice after the relationship ends, except an agreement concerning retirement benefits. The rule protects both the lawyer’s professional autonomy and clients’ freedom to choose their counsel, so noncompete agreements among attorneys are generally impermissible in Minnesota. Two limits are worth noting: the rule does not reach restrictions included in the sale of a law practice under Rule 1.17, and it separately bars any agreement in which a restriction on a lawyer’s right to practice is part of the settlement of a client’s controversy.

Medical Physician Noncompete

Since July 1, 2023, Minnesota law makes any covenant not to compete with an employee, including an employee physician, void and unenforceable, subject only to the narrow sale-of-business and dissolution exceptions, and because the statute defines “employee” to include independent contractors, a physician engaged as a contractor is also covered. Minn. Stat. § 181.988, subds. 1(c), 2. The American Medical Association (AMA) maintains an ethics opinion discouraging physician noncompetes (AMA Code of Medical Ethics Opinion 11.2.3.1), but that is professional guidance, not law.

Dentist Noncompete

The American Dental Association’s professional code provides for patients’ “freedom of choice” to select their dentist “without any type of coercion.” Historically, Minnesota law did not restrict noncompete agreements with an employee dentist. In Saliterman v. Finney, 361 N.W.2d 175, 177-78 (Minn. Ct. App. 1985), the Court of Appeals held that a “noncompete covenant in an employment agreement will be enforced when necessary to protect the goodwill of the employer’s business” and that such a covenant is assignable ancillary to the sale of the practice. The court quoted the Minnesota Supreme Court to support its holding:

Enforcement of restrictive covenants against professional employees is based on the relationship that is created, as for example, between a doctor and his patients. Once this relationship is formed, it is beyond question that a doctor’s patients will seek his aid regardless of this doctor’s employment situation.

Walker Employment Service, Inc. v. Parkhurst, 219 N.W.2d 437, 441 (Minn. 1974).

That enforceability premise no longer governs new agreements. Under Minn. Stat. § 181.988, subd. 2, a noncompete with an employee dentist, or a dentist engaged as an independent contractor, entered into on or after July 1, 2023, is generally void and unenforceable. Saliterman’s assignability holding survives, and so does a practice’s ability to protect its confidential patient list: Saliterman separately affirmed injunctive relief on a common-law-duty theory, holding that information need not be a statutory trade secret to be protected. Because the ban excludes nondisclosure and nonsolicitation agreements, a practice can still enjoin a departing dentist’s misuse of confidential patient information.

Accountant Noncompete

Under Minn. Stat. § 181.988, subds. 1(c), 2, any covenant not to compete entered into on or after July 1, 2023, is void and unenforceable, and the statute’s only exceptions (the sale and dissolution of a business) include no carve-out for an employee accountant or certified public accountant (CPA). Because the definition of “employee” reaches “any individual who performs services for an employer, including independent contractors,” a CPA engaged as a contractor is covered too. An accounting firm can still protect its client base through nondisclosure, trade-secret, and nonsolicitation agreements, which fall outside the ban.

Veterinarian Noncompete

Minnesota law now voids noncompete agreements with employee veterinarians. Section 181.988 makes any covenant not to compete entered into on or after July 1, 2023, void and unenforceable, and its definition of “employee” reaches any individual who performs services for an employer, including independent contractors. Minn. Stat. § 181.988, subds. 1(c), 2(a). There is no professional carve-out for veterinarians. A noncompete a veterinarian signed before July 1, 2023, remains governed by prior common law, and a practice may still use nondisclosure and nonsolicitation agreements, or a noncompete tied to the sale or dissolution of the practice.

Are Noncompete Agreements in the Sale of a Business Enforceable?

Noncompete agreements involving the sale of a business are generally enforceable, and the 2023 statute expressly preserves them. Under Minn. Stat. § 181.988, subd. 2(b)(1), a covenant agreed upon during the sale of a business is valid and enforceable if it is temporary and geographically restricted, meaning limited to a reasonable geographic area and a reasonable length of time, and the seller and the buyer may agree to it. Of course, outrageous language that is not reasonably calculated to protect the interests of the buyer may be subject to the blue pencil doctrine, where the court limits the agreement to the scope permitted under Minnesota law.

Can a Noncompete Clause be Enforced against Some Employees or Independent Contractors but Not Others? Isn’t Selective Enforcement Illegal or a Waiver of Rights?

Whether a noncompete could be enforced against one person and not another turned, under Minnesota’s pre-2023 common law, on a fact-specific reasonableness inquiry: whether the covenant protected a legitimate interest of the employer, no broader than necessary, weighed against the hardship to the employee and the public interest in a person’s right to earn a living. Bennett v. Storz Broadcasting Co., 270 Minn. 525, 134 N.W.2d 892 (1965). Because that inquiry is individualized, a covenant could be enforced against one employee and not another. For agreements entered into on or after July 1, 2023, this no longer arises for employment noncompetes: Minn. Stat. § 181.988, subd. 2 makes them void regardless of reasonableness. The discussion below describes how selective enforcement worked under the pre-ban common law that still governs earlier agreements.

Under some circumstances, a noncompete agreement may be enforced against one party even though it is not enforced against another. For example, if an employer did not enforce its contract against employee A, it can still enforce its contract against employee B under some circumstances.

One factor courts use to determine whether to enforce a noncompete agreement is whether the agreement protects a legitimate interest of the employer. Thus, if an employer did not enforce a noncompete agreement with employee A in the past, and employee B is in similar circumstances, the court could easily conclude the employer does not have a legitimate interest to protect for employee B. The counter-argument is that employee B’s position is substantially different from employee A, so while the employer had no interest in enforcing an agreement with employee A, the employer has a legitimate interest to protect with employee B.

While there is case law supporting the notion that the contractual doctrine of “waiver” can apply to multiple contracts with different parties, most agree waiver is only applicable to multiple contracts between the same parties. Whether courts use “waiver” or “legitimate interest of the employer,” the outcome may be the same.

Thus, the key question is whether the employees who were allowed to violate their noncompete agreements in the past were similarly situated as it relates to the legitimate interests of the employer. This is a balancing test between the employer’s legitimate interest in protection from unfair competition and the public policy favoring a person’s freedom to earn a livelihood. Walker Employment Service, Inc. v. Parkhurst, 219 N.W.2d 437, 441 (Minn. 1974).

Where Can I read More about the Details of Minnesota Noncompete Law?

Other Minnesota attorneys have written good articles on Minnesota noncompete law including this legal explanation of Litigating Covenants Not to Compete, by William Christopher Penwell, and this site by my friend Craig W. Trepanier.

Is a Noncompete Clause that is Too Broad Void or Unenforceable?

Not necessarily void entirely, but this now depends on the agreement’s date. Minnesota courts apply the “blue pencil doctrine” to modify an overbroad noncompete and enforce it only to the extent reasonable rather than striking it down entirely. Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 131 & n.1 (Minn. 1980). That doctrine, however, applies only to covenants a court may still enforce: noncompetes entered into before July 1, 2023, and the sale-of-business and dissolution covenants the statute still permits. For an employment covenant entered into on or after July 1, 2023, Minn. Stat. § 181.988, subd. 2 makes the covenant void and unenforceable outright, so there is nothing left to narrow. Where the doctrine does apply, a court might, for example, reduce a worldwide restriction to Minnesota rather than void it.

Can an Employer Recover Attorney’s Fees for Suing an Employee who Violates a Noncompete Agreement?

Minnesota follows the American Rule, so a party suing for breach of a noncompete generally cannot recover its attorney’s fees from its adversary absent a contract provision or a statute authorizing them. Kallok v. Medtronic, Inc., 573 N.W.2d 356, 363 (Minn. 1998). In practical terms, fees are recoverable only where:

1. the contract being breached provides for recovery of attorney’s fees,
2. a state or federal statute authorizes recovery, or
3. a third party, such as the employee’s new employer, tortiously interfered with the noncompete.

The third route is the third-party litigation exception: an employer whose noncompete was tortiously interfered with may recover, as damages from the interfering new employer, the fees it incurred enforcing the agreement against its former employee. That exception has two independent requirements, an actual tort by the third party and that the tort projected the employer into separate litigation, and Minnesota courts award such fees sparingly. Kallok v. Medtronic, Inc., 573 N.W.2d at 363.

The 2023 statute also cuts the other way. In addition to injunctive relief and any other remedies, a court may award an employee who is enforcing rights under section 181.988 reasonable attorney fees. Minn. Stat. § 181.988, subd. 2(d). So an employer that tries to enforce a void noncompete can be ordered to pay the employee’s fees.

What Are the Pros and Cons of Requiring Employees to Sign a Noncompete Agreement?

Some potential pros of requiring employees to sign noncompete agreements include:

• Protecting the employer’s business interests: A noncompete agreement can prevent an employee from using their knowledge and expertise to directly compete with their former employer or disclose confidential information to competitors.
• Providing a deterrent for employee turnover: The threat of not being able to work in the same industry after leaving a job may discourage employees from quitting and seeking employment with a competitor.
• Potentially increasing the value of the business: If a business has a large number of employees who are bound by noncompete agreements, it may make the company more attractive to potential buyers.

On the other hand, there are also some potential cons to requiring employees to sign noncompete agreements, including:

• Limiting employee mobility and career opportunities: Noncompete agreements can restrict an employee’s ability to work in their chosen field, which can make it difficult for them to advance their career or find new employment after leaving their current job.
• Potentially lowering employee morale: Employees may feel frustrated or resentful if they feel like their ability to work in their chosen field is being limited by a noncompete agreement. This can lead to lower morale and potentially higher turnover rates.
• Potentially stifling innovation and competition: If too many employees in a particular industry are bound by noncompete agreements, it can limit the pool of talent and ideas available to competing companies, which can stifle innovation and competition.

Keep in mind that, for relationships formed on or after July 1, 2023, an employment noncompete is no longer one of these tools: it is void. Employers who want protection now rely on nondisclosure, trade-secret, and nonsolicitation agreements, which remain enforceable. Employers should carefully weigh the potential benefits and drawbacks before deciding whether to use these agreements as part of their employment contracts.

For additional information, refer to Noncompete Agreements Now Illegal in Minnesota? Here’s What You Need to Know

Noncompete agreements are one of many contract issues Minnesota businesses face. Explore our full contracts practice area for related guidance.

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 has joined California, North Dakota, and Oklahoma among the states that have broadly banned 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.

[Update: The statute itself already brings independent contractors within the ban, including a corporate entity a worker is required to form as a condition of the contract. Minn. Stat. § 181.988, subd. 1(d). In 2024, the Legislature also addressed one business-to-business scenario: effective July 1, 2024, Minn. Stat. § 181.9881 voids no-poach terms in service contracts that would restrict a customer from soliciting or hiring a service provider’s employees. As of now, no published Minnesota appellate decision has interpreted either the 2023 noncompete ban or the 2024 no-poach statute.]

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. The second exception to the Minnesota noncompete agreement ban is non-solicitation agreements.

What Are 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.

Conclusion

All right, if you have any constructive feedback, please feel free to provide that. I am somewhat new to this, and I am working to provide value that is relevant to you as business owners and other listeners interested in entrepreneurial and business topics. It is my goal to demystify business law so that people have practical understanding and are empowered to run their business and avoid legal problems and hopefully experience a better business and a better life.

If you would like to learn more about me, you can go to aaronhall.com. If you would like the free videos that I send out only exclusively to subscribers, you can get them at aaronhall.com/free. And if you would like more content like this, you are welcome to subscribe to this YouTube channel, and you will be notified next time when we go live, which I expect will be quite soon here. Thanks for joining me today.

About the Author: This article was written by attorney Aaron Hall. Aaron routinely represents employers and employees with noncompete agreement disputes and drafting noncompete agreements. An attorney is available to analyze noncompete agreements or represent parties seeking to understand their legal rights and options_._

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Noncompete agreements are one piece of a larger employment law puzzle. The Legal Operating System addresses restrictive covenants alongside employee handbooks, hiring practices, and contractor classification, the full People and Policies pillar that protects growing businesses.