Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
On May 24, 2023, Gov. Tim Walz signed legislation into law prohibiting employers from entering into non-competition agreements with both employees and independent contractors. This new law took effect on July 1, 2023, and applies to agreements entered into on or after that date.
A non-competition provision in violation of the new law is void and unenforceable, according to Minnesota statute 181.988. If part of a larger agreement, the fact the non-compete is void would not render the remainder of the agreement void. In addition to other remedies, a court may award reasonable attorneys’ fees to an employee who is enforcing their rights under the new law.
As defined in the new law, covenants not to compete are agreements that prevent an employee (including independent contractors), after termination of the employment relationship, from: (i) working for another employer for a period of time, (ii) working in a specified geographical area, or (iii) working for another employer in a similar capacity to the work the employee did for the employer that is party to the agreement.
Under the statute, several agreements are not considered covenants not to compete. These include: a nondisclosure agreement, an agreement designed to protect trade secrets or confidential information, a nonsolicitation agreement, an agreement restricting the ability to use client or contact lists and an agreement not to solicit customers of the employer.
There are two narrow exceptions to the prohibition on non-compete agreements, according to the statute: (1) In the sale of a business, non-competition agreements are allowed as long as they are for a reasonable length of time and within a reasonable geographic area; and (2) a non-compete agreement is allowed if it is agreed upon in anticipation of the dissolution of a business.
Parties cannot enter into an agreement in an attempt to make an end run around the new Minnesota law. Specifically, an employer cannot require that an employee who primarily resides and works in Minnesota agree to a provision that would: (i) require the employee to adjudicate a claim arising in Minnesota in a jurisdiction outside the state, or (ii) deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota. Any such provision is voidable by the employee and if a provision is rendered void at the request of an employee, any legal action must be brought in Minnesota and will be governed by Minnesota law.
In addition to the new Minnesota law and actions taken in other states, non-competition agreements are also in jeopardy at the federal level. The Federal Trade Commission has proposed a rule that would ban non-compete agreements nationwide.
If that becomes a final rule in its current form, then unlike the new Minnesota law, it will be retroactive and likely would ban nonsolicitation agreements as well. More recently, the National Labor Relations Board has stated that it believes most non-competition agreements infringe upon non-management/supervisor employee rights under Section 7 of the National Labor Relations Act.
The new Minnesota non-compete ban is a substantial development in Minnesota law. Employers should take steps now to protect their business and ensure they are not in violation of the new law. For example:
