Minnesota recently passed a new bill that significantly impacts covenants not to compete in employment and independent contractor agreements. The bill will take effect on July 1, 2023, and applies to employer non-compete agreements entered into on or after that date. This law provides substantive protections to employees and independent contracts by restricting the enforceability of non-compete agreements.
A non-compete agreement is a type of contract that prohibits an employee from competing with their employer for a certain period of time after leaving their job. These agreements are often used by employers to protect legitimate business interests such as confidential information and trade secrets. However, certain non-compete agreements are perceived as unfair to employees because they limit their ability to find new jobs and earn a living. In recent years, there has been a growing movement to ban non-compete agreements, and Minnesota is now the latest state to do so.
Definition of Covenant Not to Compete
Under the Minnesota’s new law, a "covenant not to compete" is defined as an agreement between an employee and employer that restricts the employee, after the employment relationship has ended, from:
Working for another employer for a specified period of time.
Working within a specified geographical area.
Working for another employer in a capacity similar to the worker’s previous employment.
For purposes of this law, the term “employee” includes an independent contractor.
Exclusions from Covenant Not to Compete
Minnesota’s covenant not to compete law explicitly excludes nondisclosure and non-solicitation agreements from being classified as covenants not to compete.
Enforceability of Covenants Not to Compete
Minnesota’s new law makes covenants not to compete contained in contracts or agreements void and unenforceable, except under two specific circumstances:
Sale of a Business: A covenant not to compete may be valid and enforceable if it is agreed upon during the sale of a business. The agreement may prohibit the seller from carrying on a similar business within a reasonable geographic area and for a reasonable length of time.
Dissolution of a Business: A covenant not to compete may also be valid and enforceable if it is agreed upon in anticipation of the dissolution of a business. The parties involved in the dissolution may agree that certain individuals will not carry on a similar business within a reasonable geographic area where the business has been transacted.
If an agreement or contract contains an unenforceable covenant not to compete clause it will not cause other provisions in the contract or agreement to be void or unenforceable.
Employee Protections
The new law offers additional protections to employees by addressing choice of law and venue provisions. Specifically, Minnesota makes it unlawful for an employer to require an employee, as a condition of employment, to agree to a provision that would require adjudicating a claim arising in Minnesota outside of the state. Similarly, an employer is prohibited from depriving an employee of the substantive protections of Minnesota law with respect to a controversy arising in Minnesota.
Violations and Remedies
In case of a violation, Minnesota's law grants employees the right to seek injunctive relief and any other available remedies. Moreover, a court has the discretion to award reasonable attorney fees to an employee seeking to enforce their rights afforded by this new law.
Implications for Employers
With the implementation of this new law, employers in Minnesota must review and make any necessary revisions to their existing employment and independent contractor agreements by removing or modifying any covenants not to compete that do not fall within the permitted exceptions. To protect trade secrets and confidential information, employers should focus on implementing strong nondisclosure agreements and non-solicitation agreements. These agreements are specifically excluded from Minnesota’s definition of covenants not to compete and should be used to establish legal protections for a company’s trade secrets and confidential information.
Closing Remarks
Minnesota's new law on non-compete agreements brings significant changes to the state’s employment landscape, providing greater protections to employees. Employers must ensure their agreements with their employees and independent contractors comply with this new law and take necessary steps to protect their legitimate business interests through other types of agreements, such as nondisclosure and non-solicitation agreements.
The information provided in this article is for general informational purposes only. Nothing stated in this article should be taken as legal advice or legal opinion for any individual matter. As legal developments occur, the information contained in this article may not be the most up-to-date legal or other information.