Minnesota bans covenants not to compete in new agreements with employees

In a significant change to its law, as of 01 July 2023, Minnesota now prohibits employee covenants not to compete in agreements executed on or after this date except in limited circumstances, such as an agreement used when a business is sold. This shift brings Minnesota into line with “employee-friendly” states such as California and North Dakota. Based on this change, many Minnesota-based employers will need to update their employment agreement forms.

This law change is prospective only and is not intended to impact covenants not to compete found in agreements formed prior to 01 July of this year. Yet to be determined is the extent to which the public policy change reflected in these recent law changes may impact litigated disputes over earlier employee covenants not to compete.

Minnesota also recently adopted other related worker-friendly law changes. In a new approach, Minnesota expressly extended the prohibition against employee covenants not to compete also to non-employee independent contractors. This change creates the need for many employers to update any independent contractor agreement forms in addition to their employment agreement forms. 

Minnesota further changed its law by prohibiting employers from including provisions in agreements with employees or contractors that purport to apply the law of a jurisdiction other than Minnesota, or require a Minnesota-based worker to bring any claim against the company in a forum outside Minnesota. This development means that many multistate employers based outside Minnesota will need to modify their standard employee and contractor agreement forms for their Minnesota workers.

All hope is not lost for Minnesota employers in their efforts to confront unfair competition. The Minnesota legislature recognised in its recent law change that employers may continue to include customer and employee non-solicitation covenants in their agreements with Minnesota workers. They also may include provisions designed to protect the employer’s confidential information and trade secrets. At this point, however, covenants not to compete are now off limits for most new employees in Minnesota.

Craig A. Brandt is a Minnesota State Bar Association Certified Specialist in Labour and Employment Law, and is a member of Moss & Barnett's employment law team. He advises businesses and individuals on employment and labour law matters.