On May 24, 2023, Minnesota Governor Tim Walz signed SF 3035, a sweeping omnibus bill that addresses a laundry list of employment topics (the “Law”). Among the new restrictions, the Law contains a near-total ban on non-compete agreements, which goes into effect July 1, 2023.
Specifically, any non-compete agreements entered into on or after July 1, 2023 will be void and unenforceable under Minnesota law, although any other valid provision in the agreement or contract can be enforced. The definition of non-compete agreement includes any agreement between an employee and employer that restricts the employee, after termination of employment, from performing: (1) work for another employer for a specified period; (2) work in a specified geographical area; or (3) similar work for another employer. The Law also applies to agreements with independent contractors. The Law further requires that any non-compete dispute be governed by Minnesota law and adjudicated in a Minnesota forum, thereby invalidating any choice of law or forum selection clause to the contrary. Employers may not require employees who primarily reside and work in Minnesota to agree to these provisions as a condition of employment.
Notably, the Law does not prohibit non-competes entered into in: (1) conjunction with the sale of a business to restrict the seller from carrying on a similar business within a reasonable geographic area and for a reasonable length of time; or (2) anticipation of the dissolution of a business where some or all owners are restricted from carrying out a similar business within a reasonable geographic area. The Law also does not apply to non-disclosure agreements and non-solicitation agreements.
Following passage of the Law, Minnesota has joined a growing number of states—including California, North Dakota, and Oklahoma—that have enacted near-total bans on non-compete agreements. New York may soon be on that list. Employers with Minnesota-based workers should take the opportunity to re-evaluate their restrictive covenant templates to ensure compliance with the Law.