Minnesota Bans Non-Compete Agreements

While not really wage and hour related, I figured with all the new laws taking effect in Minnesota, I’d throw in a few others that I have been giving seminars on recently. Effective July 1, 2023, Minnesota law prohibits non-compete agreements for both employees and independent contractors. This new law applies to agreements entered into on or after that date. Thus, it is not retroactive, so existing non-compete agreements should still be considered valid. I say “should” because there is an argument to be made (that will be made) before the courts that two people in the same position can’t be treated differently in this regard. Specifically, if a non-compete must only be only so broad as to protect a business’ legitimate business interests, a plaintiff’s attorney may argue that it is not necessary or legitimate as other people performing the same work are free to compete.

Of further note, the ban on non-compete agreements does not extend to non-solicitation, non-disclosure, or agreements designed to protect intellectual property or confidential information. What about non-solicitation of employees? Again, I think this is going to be litigated to the extent a non-solicitation is linked to prohibiting a former employee from hiring away a current employee to work for a competitor. A plaintiff may argue that is an end-run around the law.

Two specific types of non-compete agreements are exempt from the ban: agreements made during the sale of a business or in anticipation of the dissolution of a business. What about a shareholders’ sale of their shares? The law is silent, but there was a proposed amendment during the writing of the legislation that would have specifically added that it applies to the sale of shares as well and it was not included in the bill. Accordingly, the legislature seems to have indicated that this is intended to be related to the wholesale sale of a business and just individuals’ sale of membership interests/stock.