On May 16, 2023, the Minnesota legislature passed a bill banning non-competition agreements. The bill is expected to be signed shortly by Governor Tim Walz. The ban is set to take effect on July 1, 2023, and is not retroactive. Thus, non-compete agreements executed before July 1, 2023, will not be prohibited by the new law.

The Minnesota ban broadly applies to non-compete agreements between employers and employees, as well as to non-compete agreements with independent contractors. The law will prohibit any agreement that would “restrict the employee [defined to include independent contractors], after termination of the employment, from performing (1) work for another employer for a specified period of time; (2) work in a specified geographical area; or (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is a party to the agreement.” The forthcoming law does not contain any exception for C-suite executives, high-wage employees, or knowledge workers.

The new law also contains restrictions designed to prevent employers from using choice of law or venue clauses to evade application of the ban for Minnesota employees or independent contractors.

The law does not prohibit non-compete agreements that are “agreed upon during the sale of a business” or “agreed upon in anticipation of the dissolution of a business.” The law also does not ban non-solicitation, non-disclosure, or confidentiality agreements.

It is crucial for Minnesota employers to re-evaluate how best to protect their legitimate business interests, including their trade secrets, in light of the forthcoming ban. It is also important for Minnesota companies to avoid using non-competition provisions in their employee and applicable independent contractor agreements after the ban takes effect on July 1, 2023. The forthcoming law provides that courts may award employees and independent contractors their reasonable attorneys’ fees to enforce their rights under the new non-compete ban.

Once enacted, Minnesota will become the fourth state to statutorily ban non-compete agreements with only narrow exceptions, joining California, Oklahoma, and North Dakota. Other states prohibit non-compete agreements for employees below a certain income threshold — e.g., Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington. The vast majority of states have no outright statutory ban on non-compete agreements. Minnesota’s ban comes amidst the Federal Trade Commission’s (FTC) ongoing proposed rulemaking that would seek to ban non-competition agreements nationwide; ArentFox Schiff LLP previously published alerts on the FTC’s proposed rule.