Starting from July 1, 2023, a significant change has been implemented in Minnesota law regarding covenants not to compete. Under the new legislation, such restrictive covenants in contracts or agreements are now considered void and unenforceable. This shift has raised questions among employers and business owners regarding the impact on their operations. Learn more about the details of the new law, its implications for employers, and the exceptions to its enforcement.

The Law: Restrictions on Departing Employees

According to the revised law, employers are prohibited from restricting departing employees from working in a similar trade or business, unless there is a legitimate business interest that needs protection. This change aims to promote employee mobility and prevent unfair restraints on individuals seeking employment opportunities. However, there are specific activities that employers can still restrict departing employees from engaging in.

Disclosing confidential proprietary information or trade secrets. Employers have the right to prevent employees from sharing sensitive company information that could harm their competitive advantage. This protection ensures that valuable intellectual property remains safeguarded and doesn’t fall into the wrong hands.

Using the employer’s client or contact list. Employers can restrict employees from utilizing customer lists or contact information obtained during their employment for personal gain or to compete with the employer. This provision prevents employees from unfairly leveraging the relationships built during their tenure for their own benefit.

Soliciting customers and employees of the employer. Employers can prohibit employees from actively soliciting the employer’s customers or enticing fellow employees to leave the company. This restriction helps maintain business continuity and prevents unfair competition.

Disparaging the employer or its employees. Employers can take measures to prevent former employees from making negative remarks or damaging the reputation of the company or its workforce. This protects the company’s image and prevents any potential harm resulting from disgruntled employees.

Exceptions to the New Law

While the new law renders most non-compete agreements unenforceable, there are two important exceptions to consider:

Sale of a business. In the event of a business sale, the seller and buyer can agree on a temporary and geographically restricted non-compete clause. This provision can prevent the seller from engaging in a similar business for a specific time period and within a designated location. It ensures that the buyer’s investment is protected and allows for a smoother transition.

Business dissolution. When a business is winding up following the dissolution of a corporate entity, the owners may agree that some or all of them will refrain from conducting a similar business within a reasonable geographic area where the original business operated. This provision helps prevent immediate competition and allows for an orderly dissolution process.

Enforcement of Non-Compete Agreements

Non-compete agreements that were entered into prior to July 1, 2023, are still valid and enforceable, provided that the agreement was established before the commencement of employment and was supported by adequate consideration. However, any non-compete agreements entered into after July 1, 2023, are considered void and unenforceable unless they fall under the aforementioned exceptions.

Additionally, the new law also prevents employers from requiring employees who reside and work in Minnesota to agree, as a condition of employment, to adjudicate claims arising in Minnesota outside of the state. This ensures that employees can benefit from the full protections of Minnesota law and cannot be deprived of their rights through choice of law provisions.

Embracing the New Landscape of Covenants Not to Compete in Minnesota

The new law on covenants not to compete in Minnesota marks a significant shift in the landscape of employment agreements. The prohibition on enforcing non-compete agreements, except in specific circumstances, reflects a growing recognition of the importance of employee mobility and fair competition in the marketplace. By voiding such restrictive covenants, the state aims to foster innovation, encourage entrepreneurship, and empower individuals to pursue new opportunities without undue restraints.

Employers must now adapt to this changing legal framework by reevaluating their strategies for protecting their legitimate business interests. While non-compete agreements may no longer be enforceable in most cases, employers can still rely on other means of safeguarding confidential proprietary information, client lists, and their reputation. Implementing robust trade secret protection measures, confidentiality agreements, and strong intellectual property safeguards will become even more critical in maintaining a competitive edge.

Furthermore, employers should proactively review their employment contracts and agreements to ensure compliance with the new law. It is vital to remove any unenforceable non-compete clauses and revise employment policies to align with the updated regulations. By staying informed and adapting their practices, employers can navigate the changing legal landscape effectively while still protecting their business interests.

Employees, on the other hand, can now explore new job opportunities with increased freedom and confidence. The ability to transition to a similar trade or business without facing restrictive non-compete agreements opens up avenues for professional growth and career advancement. However, employees must remain mindful of their obligations regarding confidentiality, trade secrets, and avoiding disparagement to maintain ethical and lawful practices.

Ultimately, Minnesota’s new law on covenants not to compete represents a paradigm shift that prioritizes a fair and balanced approach to employment agreements. By striking a delicate balance between protecting employer interests and promoting employee mobility, the state aims to foster a competitive job market and drive economic growth. Understanding and adhering to the updated legal requirements will be key for both employers and employees to navigate this new landscape successfully.

Trust Lommen Abdo for Professional Guidance on Your Covenant Not to Compete Matters

For guidance and assistance in navigating the complexities of Minnesota’s new law on covenants not to compete, you can rely on the experienced legal team at Lommen Abdo. If you are an employer seeking guidance on protecting your business interests and ensuring compliance with the revised legislation, we are dedicated to providing you with comprehensive support and tailored solutions. Our attorneys are well-versed in employment law matters and can provide comprehensive advice tailored to your specific situation. Contact Lommen Abdo today to schedule a consultation and ensure that you have the support you need to navigate this evolving legal landscape.