Minnesota Non-compete Law: All You Should Know

Minnesota Non-compete Law

Minnesota Non-compete Law: As this trend becomes more widespread, Minnesota has joined several other states in taking tough measures against noncompete agreements. Governor Tim Walz of Minnesota signed SF 3035, a measure that forbids most covenants not to compete, on May 24, 2023, between employers and independent contractors or workers. Agreements intended to safeguard trade secrets or private information, nondisclosure agreements, nonsolicitation agreements, and noncompete clauses agreed to as part of a business sale or dissolution are all expressly excluded from legal requirements. SF 3035 offers reasonable attorneys’ costs and injunctive redress in the event of a legal infraction. On July 1, 2023, non-compete agreements were outlawed. This article summarizes the essential legal requirements and draws attention to important factors.

What is the Minnesota Non-compete Law

Minnesota legislation prohibits any agreement or contract with an employee or independent contractor from including a promise not to compete. According to the bill, a covenant not to compete is an agreement that prohibits an employee from working for a different company for a predetermined amount of time, operating within a predetermined geographic area, or serving in a capacity for a different company that is comparable to their work for the employer that is party to the covenant. The new rule will only apply to contracts made on or after July 1, 2023, not retrospectively.

People Covered by SF 3035

All noncompete agreements between an employer and an employee or independent contractor are prohibited by SF 3035, unless they are related to the sale or dissolution of the business, as is further explained below. A “covenant not to compete” is a statute-defined agreement that prohibits a former worker or independent contractor from:

  • Working for a different company for a predetermined amount of time.
  • Working inside a predetermined geographic region.
  • Working for a different company in the same industry as your previous one.

Noncompete restrictions in states include independent contractors, corporations, and limited liability corporations. Minnesota’s law is broader than most other states, including independent contractors. It also includes all employees, regardless of compensation level, excluding those who earn less than a designated minimum earnings threshold. This makes Minnesota’s law more comprehensive.

Agreements not included in SF 3035

Agreements that do not meet Minnesota’s criteria for a “covenant not to compete” are not covered by SF 3035. The Minnesota non-compete act permits various legal forms of agreements, including noncompete agreements, which are not explicitly listed or allowed.:

  • Agreements against customer solicitation, forbid employees from approaching the clients and customers of their previous employers.
  • Agreements against recruiting or soliciting the services of former coworkers are known as employee non-solicitation agreements.
  • Agreements about inventions and trade secrets that are nondisclosure and confidential.

Employers can safeguard their trade secrets, clientele, private data, company image, and goodwill from rivals as long as confidentiality and nondisclosure agreements are enforceable. Furthermore, companies can forbid departing employees from pursuing clients or other employees after termination as long as employee and customer nonsolicitation agreements are effective. Employers in Minnesota will typically be able to keep some hazards related to competition from departing employees to a minimum.

Dissolution of business exclusions and business sale

As previously mentioned, noncompete clauses about business sales or agreements made in advance of company dissolution are nonetheless enforceable under the legislation as long as their length and geographic reach are suitably restricted.

This clause is very akin to California’s non-compete law, which offers comparable exclusions for contracts made in connection with the sale of a business interest or the dissolution of a limited liability company or partnership.

Blue penciling and severability

Crucially, a Minnesota agreement’s invalid noncompete clause will be severable and shouldn’t make the entire contract null and void.

SF 3035 does not mention “blue penciling,” which is the court’s process of rewriting or altering a contested contract. Minnesota allows for this type of amendment, which has been historically used to simplify extremely broad noncompetes into “reasonable” limitations. Minnesota courts will probably continue to restrict and amend current agreements if the conditions match the exclusions listed in the statute for acceptable noncompetes.

Selection of venue and law

Contractual clauses that would force an employee who “primarily resides and works in Minnesota” to resolve disputes elsewhere or deny them the “substantive protection of Minnesota law” are forbidden under SF 3035. This ban, which is intended to thwart ingenious attempts to evade the law, extends to arbitration and litigation. Any such clause that is agreed upon in a contract after July 1, 2023, is null and invalid.

Therefore, Minnesota law will govern the adjudication of all disputes regarding non-compete agreements in Minnesota. Although the choice of law and venue clauses seem to have been intended solely for prohibited noncompetes, these limitations may extend to all employment agreements, even those that do not contain noncompete clauses.

Penalties for failing to comply

Regarding particular fines or sanctions for violation, SF 3035 is mainly quiet. In the event of a violation, the Act does, however, expressly permit “injunctive relief and any other remedies available.” Moreover, the legislation stipulates that “reasonable” legal fees may be awarded to any worker or independent contractor who wants to uphold their legal rights.

Minnesota Non-compete Law: FAQs

Does Minnesota’s non-compete statute apply to the past?

Minnesota now forbids the use of non-compete agreements, following several other states that have recently implemented similar laws. Furthermore, the Minnesota statute is distinct in a few other ways. In Minnesota, non-compete agreements are illegal but not retroactive, as per the following crucial points to remember.

In Minnesota, what is a non-compete blue pencil?

A court may amend a non-compete that has an unreasonable geographic breadth, duration, or scope under the “blue pencil” criterion. A court may impose an excessively broad restriction by this criterion, but only to the extent that it is reasonable.

In the US, what is a non-compete agreement?

By definition, employee non-compete agreements are trade restrictions in the form of covenants. These typical clauses in employment contracts prohibit or limit an employee’s capacity to work for a rival company after they leave the organization.

Minnesota Non-compete Law: Conclusion

Minnesota requires companies to promptly review their employment contracts and remove any illegal clauses regarding non-compete and venue. Employers should also consider whether a court could view any nonsolicitation clauses about customers or clients as overly broad and de facto noncompetes. Employers should also concentrate on alternate strategies, such as confidentiality and nondisclosure clauses, and specifically crafted nonsolicitation limits, to safeguard their trade secrets and confidential information.

Lastly, companies with nationwide workforces—that is, those with workers in many states—should prioritize keeping up with modifications to the legality of restrictive covenants in the states in which their workers are located.

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