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New Minnesota Law Bans Most Post-Employment

The law applies to post-termination covenants not to compete (“non-competes”) entered into

Under the law, a post-termination non-compete with an employee or independent contractor is

void and unenforceable unless it is agreed upon during the sale of a business or in anticipation of

the dissolution of a business.

An employer may not require an employee or independent contractor who primarily resides and

works in Minnesota to agree, as a condition of employment, to adjudicate non-compete claims

outside of Minnesota or to have any other state’s law apply to a non-compete.

Aggrieved individuals may be able to collect reasonable attorneys’ fees in enforcing their rights

The law defines a non-compete as an agreement between an employer and an employee (which is

defined to include certain independent contractors, as discussed in the second takeaway below) that

working in a specified geographical area; or

working for another employer in a capacity that is similar to the employee’s (or independent

contractor’s) work for the employer that is party to the non-compete.

However, the law makes clear that a non-compete does not include: (i) a nondisclosure agreement,

agreement, or (iv) an agreement restricting the ability to use client or contact lists or solicit customers of

the employer. These exceptions do create a few questions, including what the term “non-solicitation

agreement” means (e.g., employee non-solicitation, customer non-solicitation, etc.) and where the line is

entity that an individual formed for purposes of entering into a contract for services, when the employer

required such entity formation as a condition of receiving compensation under an independent

contractor agreement. As used throughout this Client Alert, the term “independent contractor” has this

meaning.

Under the law, any non-compete with an employee or independent contractor is void and unenforceable,

except for non-competes that are agreed upon:

during the sale of a business; or

length of time. However, the level/type of interest that one must hold in the business to be considered a

“seller” is unclear under the law. For example, the law does not address whether a “seller” would include

individuals who dispose of only a small interest in the business, or who are option holders or other

holders of derivative securities.

When the dissolution of a business is anticipated, the partners, members, or shareholders may agree

that any or all of them will not carry on a similar business in a reasonable geographic area where the

business has been transacted.

The law does not provide guidance as to what would be a reasonable geographic scope or length of time

for a permissible non-compete.

independent contractor of the substantive protection of Minnesota law with respect to a controversy

arising in Minnesota under the non-compete law. Any provision that requires the above is voidable at the

employee’s or independent contractor’s request, in which case the dispute would be adjudicated in

Minnesota under Minnesota law.

Based on the foregoing, the law does not seem to require adjudication in Minnesota and application of

Minnesota law for non-compete disputes if an employee or independent contractor: (i) primarily resides or

works in a state other than Minnesota, and/or (ii) is not required as a condition of employment to execute

the non-compete. In such circumstances, an employer may be able to avoid application of Minnesota’s

non-compete ban if another state’s law can properly apply. However, if an employee or independent

contractor resides or works in Minnesota for any period of time, an employer should consult with legal

An employee or independent contractor who “is enforcing rights under [the law]” may obtain injunctive

relief, other available remedies, and reasonable attorneys’ fees. Thus, merely requiring an employee or

independent contractor to sign a non-compete that violates Minnesota law, even if the employer does not

try to enforce it, may give rise to liability if the employee or independent contractor seeks relief.

The effective date is fast approaching. The law is not retroactive, so it applies only to agreements that

are entered into on or after July 1, 2023. Thus, employers should review their agreements and consult

with legal counsel to make any edits that may be needed to comply with the new law starting July 1,

2023.

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