Minnesota Bans Non-Compete Agreements for All Employees

Posted by Sam Kramer

Last month we listed some of the many changes coming to Minnesota workplaces after a busy legislative session that ushered in huge reforms to the state’s employment laws. Today we are going to focus on one of the most significant of those reforms: a total prohibition on non-compete agreements.

Non-compete agreements prohibit workers from leaving their job and working for another employer in the same industry or field. These restrictive agreements often prevent workers from pursuing their career of choice, even if their employer fires them. Non-competes were once only an issue for executives and inventors, but over time employers started imposing them on everybody from Jimmy John’s workers, to caretakers at apartment buildings, to hairstylists, to doctors.

Employer abuse and overreliance on non-competes has had devastating impacts on individual employees, and society as a whole. Workers are forced to stay at jobs they don’t like because quitting would force them to stop working for the length of the non-compete agreement, move their families to a location outside the geographic range of the non-compete, or give up the career of their choosing to avoid competing with their former employer. This reduces workers’ leverage in demanding better compensation and working conditions, and allows employers to hold the threat of litigation over the heads of employees who assert their own legal rights in situations where they face discrimination, retaliation, harassment, or wage theft. Research has found that non-compete agreements take up to $300 billion out of the pockets of workers around the country every year.

Minnesota has been no exception to the negative effects of non-compete agreements. Courts have recognized the legality of such agreements for decades, and employers have responded by forcing them on more and more workers.

Everything is about to change though. On July 1, 2023, Minnesota will become the fourth state in the country to prohibit all non-compete agreements in employment. This momentous change in the law is unlike that of many other states, where non-compete bans have been limited to certain industries or low-wage workers. Minnesota took the bold step of prohibiting non-compete agreements for all workers and all industries. Whether you are a restaurant worker making minimum wage or a doctor making much more than that, starting on July 1 your employer can no longer force you to sign a non-compete agreement. This is true whether you’re an employee or an independent contractor.

The new law provides only limited exceptions to the prohibition on non-compete agreements. First, non-compete agreements related to the sale of a business will remain valid. Second, certain types of agreements that are often included along with non-competes will also remain valid, including non-solicitation agreements that prevent employees from taking their customers and co-workers with them to new companies, and confidentiality agreements that prohibit the use of information gained while working for one employer when working for a competitor.

Expect employers to try to warp these limited exceptions in their favor. Some will take previously reasonable non-solicitation agreements and broaden them to prevent working with any potential customer anywhere in the world, effectively turning them into non-compete agreements by another name. Others will beef up confidentiality agreements to make it difficult to use their experience to gain another job. It remains to be seen how courts will treat such attempts to do an end-run around the new law, but such efforts may very well be found to violate the prohibition.

Unfortunately, the new law does not impact existing non-compete agreements. Employees who previously signed non-compete agreements are still bound by them under this law, which does not have any retroactive effect. Having said that, as employees get promoted or transfer to different business units within their companies, they may have legal grounds to argue that the prohibition applies to any new legal arrangements they enter into with their employers. Better yet, the United States Federal Trade Commission is currently considering a proposed regulation that would ban non-competes nationwide, and would make all existing non-compete agreements void, effectively accomplishing the retroactive effect missing from Minnesota’s new law. That regulation is not yet in effect, and it remains to be seen whether it will be adopted at all, or in the same form as it was proposed. For now though, the new Minnesota law will ensure that going forward, employees will be able to pursue happiness in their careers without worrying about non-compete agreements.

The Minneapolis office of MacDonald Hoauge & Bayless is here to advise workers who have questions about non-compete agreements. If you are currently subject to such an agreement or are being asked to sign one, we can help you learn your rights and fight back against employers who are trying to prevent you from pursuing the job of your choice. Even existing non-compete agreements can be overcome in many situations, and employees can sometimes negotiate to void or limit their agreements so they can take a new job. If you would like to talk to an attorney about issues related to non-compete agreements in Minnesota, please contact us at 612.349.2720.

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