Minnesota Bans Non-Competes

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Minnesota Capital

I have previously discussed non-compete developments in the form of new laws in Colorado, Illinois, and Washington D.C.; a trilogy of key cases in Delaware in the past year; and a new proposed rule from the Federal Trade Commission. And now another state has entered the fray to curtail non-compete agreements.

Effective July 1, 2023, Minnesota has banned non-competition agreements. It is the fourth state to completely ban non-competes, and the first to do so in 100 years.

As is to be expected, there are various nuances to the new law. This law is not retroactive and only applies to agreements entered into after July 1, 2023. Therefore, prior Minnesota law will apply to agreements entered into prior to July 1, 2023.

The law further requires that Minnesota law apply if disputes involve agreements made with Minnesota employees. Lawsuits arising from such agreements must also be filed in Minnesota.

Under the new law, employees “may” recover their attorneys’ fees if employees have to enforce their rights in a legal proceeding.

The law includes exceptions and exclusions. It does not apply to a non-compete used in the context of a sale of a business or the dissolution of a business. In these situations, the non-compete restrictions are only enforceable as to a “similar business within a reasonable geographic area where the business has been transacted.”

Moreover, the law does not apply to a “nondisclosure agreement, or agreement designed to protect trade secrets or confidential information” or to “a nonsolicitation agreement,” or to an “agreement restricting the ability to use client or contact lists, or solicit customers of the employer.” These agreements attempt to protect an employer’s confidential or proprietary information and the loss of employees and clients. Some new state laws (for example, Illinois’s) have also included restrictions related to non-solicitation agreements.

Minnesota has joined the growing chorus of states that have modified their non-compete laws. Outside of the Federal Trade Commission’s proposed role (which would apply retroactively too), Minnesota’s non-compete law is the broadest in recent history.