Tuesday, May 30, 2023

Minnesota’s Ban on Employment Non-Competes

Non-compete provisions have long been a staple of employment agreements in most companies, especially smaller, start-up ventures where it is more likely for the average employee to have access to the company’s “secret sauce” as part of their day-to-date duties. While protections on the “secret sauce” itself are not changing, mechanisms whereby a company might prevent employees, or independent contractors, from going to work for a company’s direct competitor the day after handing in their company access badge have all but disappeared, thanks to a recent spending bill that was passed by the Minnesota legislature.

For companies looking to fill open jobs after July 1, 2023, human resources professionals and others involved in the hiring process now need to review their form employment and independent contractor agreements to ensure that they no longer contain restrictions on an individual’s ability to accept other employment opportunities once their relationship with their company has ended.

Let’s be clear: Minnesota’s new ban on non-competes is not retroactive and any non-competes signed prior to July 1, 2023, will still be enforceable. But even though current non-competes remain enforceable, the way a court may view the terms of an enforceable non-compete in the event of a dispute is likely to change with the shift in the legislature’s stance on non-competes from a public policy perspective. Current non-compete provisions that have very company-favorable terms are more likely to be stricken in their entirety or judicially revised to be more employee-favorable if the agreement allows for such revisions in the event of a dispute.

Looking forward, what’s the harm in using current forms after July 1, 2023? Leaving non-compete language in form agreements to be entered into after that date, knowing that the language cannot be enforced, is also not a good idea. Not only can doing so be off-putting to potential new hires that are familiar with the new legislation, but there is also the possibility that the inclusion of such language may lead to an entire employment agreement being set aside during an arbitration or court dispute that arises based on other provisions of the agreement.

 With this shift in a company’s ability to use a non-competes to prevent loss of talent to competitors, it will be even more critical for companies to ensure that their agreements provide robust provisions to protect trade secrets and other general confidential information, since those types of provisions will still be enforceable even after July 1, 2023. Now is a great time to review and update form agreements to maintain compliance, protect company assets, and adjust to the changing needs of a growing company.

1 comment :

  1. Brandi, super timely update on a really significant change to the law in MN. Note that the law also doesn't permit companies to use choice of law provisions to get around the application of MN law if they work primarily in MN.