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Minnesota's Noncompete Law and Its Impact on Businesses

Employment contracts can be an effective mechanism to protect trade secrets and other confidential business information when used properly by employers. Noncompetition, non-solicitation, nondisclosure, and confidentiality provisions are commonly found in these types of employment contracts. Last year, however, Minnesota joined many other states and banned noncompetition agreements in employment contracts. This ban is not retroactive and only applies to agreements signed on or after July 1, 2023.

The law passed by the Minnesota Legislature and codified as Minnesota Statute § 181.988 prohibits noncompetition agreements between employers and employees or independent contractors. This ban applies to all agreements that "restricts the employee, after the termination of the employment, from performing: (1) work for another employer for a specified period of time; (2) work in a specified geographic area; or (3) work for another employer in a capacity that is similar to the employee's work for the employer that is party to the agreement." 

The ban has a few exceptions and allows noncompetition provisions during the sale of a business or in anticipation of the dissolution of a company. Further, the law specifically does not apply to nondisclosure agreements, agreements designed to protect trade secrets or confidential information, non-solicitation agreements, or agreements restricting the ability to use client or contact lists, or solicit customers of the employer.

Prior to the ban, Minnesota courts had long disfavored noncompetition provisions because they are a partial restraint on trade and can harm former employees who are left unable to work within their chosen industry. For years, the focus of restrictive covenant litigation has been on noncompetition provisions and balancing the negative effects on the employee with the employer's need to protect legitimate business interests. Now that they have been banned by the legislature, it is expected that the focus of employment contract litigation will shift to the other restrictive covenants — namely the non-solicitation provision.

The case law surrounding non-solicitation provisions is currently lacking, so it is important that businesses pay close attention to the evolving case law in this area of employment litigation. Businesses should also use this as an opportunity to review and refine the language in their current employment contracts. In addition to removing any noncompetition language, employers must be aware of potentially overbroad non-solicitation provisions that would, in effect, restrict a former employee's ability to work as these may be deemed unenforceable under the new law. Now is the time to revisit the terms of your employment contracts to ensure they comply with new state laws and provide adequate protection for your business interests.