A new Minnesota statute (181.988) banning non-compete provisions in employee agreements has been signed into law. This new statute goes into effect on July 1, 2023 and will have implications for employers state-wide.
Section 181.988 of the statute applies to new agreements signed by employees after July 1, 2023 and prohibits employers from requiring employees (including both employees and independent contractors) to sign agreements that include non-compete restrictions. Employers will now be prohibited from requiring employees to sign agreements with restrictions upon termination on working for another employer for a specified period of time, working in a specified geographical area, and working for another employer in producing work that is similar to their work for the employer that the agreement is with. The only exceptions to the new statute are non-competes that are signed in connection to the sale of a business or in anticipation of the dissolution of a business. If you have any questions on whether these exceptions apply to your business or not, discuss with your CPA and legal counsel.
As a consequence of the new statute, employers can no longer include out-of-state choice of law and venue clauses in an employee agreement. These include conditions that would require a worker who primarily resides and works in Minnesota to adjudicate non-compete related claims arising in Minnesota in any jurisdiction outside of the state, or that would require application of another state’s law and deprive the work of the protections of 181.988.
It is important to note that this new law does not nullify non-compete agreements signed prior to July 1, 2023 and only applies to non-competes. It does not extend to other provisions within an employee agreement such as: non-solicitation restrictions, non-disclosure agreements, or agreements designed to protect trade secrets or confidential information.
The new statute will significantly change procedures and policies for many Minnesota employers especially those working with independent contractors. Employers will need to act quickly to ensure that any restrictive agreements they are planning on implementing comply with the new law by July 1, 2023.
If you are an employer who may be affected by the new legislation banning non-compete provisions, discuss with your CPA & legal counsel to help evaluate your current agreements in place and strategies for making changes in the future to comply with the new legislation.