Minnesota Senate Passes Non-Compete Ban

On Friday, April 14, the Minnesota Senate passed legislation that would significantly limit the use of non-compete agreements in our state.  While several steps remain before any non-compete ban would officially become law, the passage in the Minnesota Senate is a clear indicator that some type of non-compete ban will likely be passed this legislative session.

The Senate bill would ban all non-compete agreements in the State of Minnesota, and it would apply to both employees and independent contractors.  The Senate bill defines a non-compete to be any agreement that restricts an employee from working for another employer for a specified period of time, from working in a specified geographic area, or from working for another employer in a similar capacity or role the employee held with their former employer.  The only exception to this ban are non-competes entered into in connection with the sale of a business or in anticipation of the dissolution of a business.

It is also important to note that the Senate’s bill does not include the following types of agreements in the definition of a “covenant not to compete”: (1) “a non-disclosure agreement, or an agreement designed to protect trade secrets or confidential information,” or (2) “a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.”  Therefore, these types of agreements would remain enforceable.

The bill also provides that employees and independent contractors may recover their reasonable attorneys’ fees if required to enforce their rights under the non-compete law, and that employers cannot avoid the impact of this law by inserting a choice of law provision favoring the law of another state.  Last, the Senate bill only “applies to contracts and agreements entered into on or after” the effective date of the law, so it appears that pre-existing non-compete agreements would be grandfathered in and would remain enforceable.

Bottom Line

The Minnesota House has also introduced a non-compete ban, which has several differences from the Senate version.  The House may adopt the Senate’s language or it may end up passing a different version, in which case the two laws would be sent to a conference committee to hash out the differences before a consolidated bill is introduced and voted on by both the House and Senate.   We are closely tracking this legislation and will provide further updates as the non-compete ban winds its way through the Minnesota State Capitol.