Minnesota Legislature Takes Aim at Employment Non-Compete Agreements

Minnesota Legislature Takes Aim at Employment Non-Compete Agreements

In recent years, more and more employers have required their workers to sign non-compete agreements, which forbid the workers from taking new jobs at other companies in the same industry after leaving the old employer. This practice has attracted the attention of the Federal Trade Commission (FTC), which has proposed a rule against such agreements, and has also issued enforcement orders against three companies using noncompete restrictions in contracts with security guards and glass container manufacturing employees. In 2021, a presidential executive order instructed the federal Labor Department to issue rules limiting the use of employment non-compete agreements.

Now Minnesota state law may also soon attack the practice. A bill introduced in the Minnesota Legislature would sharply limit non-compete agreements, if passed. The legislation would prohibit any “covenant not to compete” between an employer and employee that stopped the employee from working for another employer or within a specified geographical area, after termination of employment, unless the employee’s salary is higher than a certain threshold and the employer agrees to continue to pay the employee at least half of that salary during the time in which the employee’s ability to work is restricted (thus, after termination of employment).

If both the FTC proposed rule and the Minnesota legislation come into effect, employers and workers may face unexpected questions about how the rule and the legislation interact, since they have different exceptions. Another point of note is the effect that these provisions would have on existing covenants not to compete. The FTC rule would require an employer to rescind existing non-compete clauses. The Minnesota legislation would declare such covenants void and unenforceable.

Companies that seek to prevent employees from taking proprietary information or in-house expertise to competitors may be forced seek other tools and practices to accomplish these goals, in place of non-compete agreements. The changing landscape of industry practice and law may give rise to new issues to be litigated as workers gain increased freedom to move easily between jobs.

Do you have a legal question regarding non-compete agreements or an employment related matter? Give Parker Daniels Kibort a call at 612.355.4100.