I started a series a few weeks ago about the new employment law changes in Minnesota. The first article in the series was focused on the new legalization of cannabis and its effect on employers and employees. This article will be centered around what are non-compete agreements, how they affect employers and employees, and the recent changes in the laws governing non-compete in Minnesota.
What Is a Non-Compete Agreement?
Non-compete agreements or ‘covenants not to compete’ were originally created to protect the trade secrets and confidential information of a company. ‘Covenants not to compete’ are often included in an employment contract and used to prevent workers from accepting a position at a rival company during or after they leave their current job. The restrictions included in a ‘non-compete’ are typically limited to an industry, geographic area, and period of time. The industry restriction may limit employees from getting a job in the same type of industry or with a competitor. The geographic restriction prohibits an employee from getting a job within a certain radius of the employer’s location. Finally, the time restrictions are aimed at limiting employees from accepting such a position for a certain period of time, typically two years.
How Does This Affect Employees and Employers?
These agreements have a large effect on employees and employers alike. Employees are being limited in the types of jobs they can get, and the areas they can work in. Employers are limited in the employees they want to hire because of these agreements. Employees are losing out on better and higher paying jobs as a result, and employers are losing out on talented potential employees due to these agreements. In the end, non-competes have been increasingly looked upon as unfair to employees and detrimental to the labor market.
What Has Changed?
Effective July 1, 2023, a ‘covenant not to compete’ is ‘void and unenforceable’ in the employment setting. Minn. Stat. Sec. 181.988, subd. 2(a). New employment agreements and independent contractor agreements must be structured to eliminate noncompete provisions. Whether an employee is a highly paid executive or an hourly worker does not matter; the statute codifies a complete ban. Noncompete agreements put in place before July 1 of this year are still enforceable, but employers should keep in mind that such agreements may be looked upon with disfavor and narrowly enforced by the courts.
There are a few exceptions to the law which should be addressed. The new law does not prohibit employers from prohibiting their current employees from engaging in work with competitors while employed. Employees may still use NDA’s “non-disclosure agreements”, non-solicitation agreements, or other similar agreements to protect customer information, highly confidential information, and trade secrets of the company.
Finally, non-competes are allowed when they have been previously arranged when the agreement deals with a business sale or dissolution and are deemed reasonable “in geographic and temporal scope.” (Singer) The main reason for this exception is to protect buyers of a business. “A purchaser of a business should be entitled as part of an arm’s-length bargaining process to restrict the former owners from competing and undermining expectations, particular when adequate consideration is being paid for the enterprise.” (Singer)
The banning of almost all non-competes will have an impact on many companies in Minnesota and the rest of the United States. The purpose of the law is to end what may have been overreach by employers on the use of noncompete agreements making it difficult for employees at all levels to obtain a new job and earn a living. The good news is that employees will likely have a larger pool of companies for which they can work, and employers will have a larger pool of talent from which to hire. Employers will be left with the challenge on finding other ways to protect their company’s proprietary information and competitive edge. I hope this article has been helpful for employers and employees alike.