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Minnesota now among the few states prohibiting non-competes

On Behalf of | Feb 8, 2024 | BUSINESS & COMMERCIAL LAW - Business & Commercial Law

Non-compete agreements and clauses within employment agreements have been increasingly scrapped in recent years. These agreements used to be limited to high-level executives and those in fields like tech and even toy companies that didn’t want former employees taking their skills and knowledge to competitors immediately after leaving. 

However, they were becoming pervasive and used unnecessarily – thus restricting lower-wage workers’ ability to get a job for no good reason. Even fast-food workers and bank tellers have been required to sign such agreements, which prevent them from going to work for a competitor if they leave their employer. Approximately 300,000 Minnesotans were working under non-compete agreements, according to one estimate.

The law changed last summer

Last year, Minnesota became just the fourth state to prohibit non-competes. Many people may not have noticed it, because the prohibition was part of the omnibus spending bill passed by legislature and signed by the governor. 

Specifically, employers can’t require employees or independent contractors to sign a non-compete agreement that restricts where they can work after they leave the company. The restriction became effective with any contracts signed after July 1, 2023. It’s not retroactive to agreements signed prior to that. 

The change does not affect businesses’ right to use other restrictive covenants, such as non-disclosure agreements. All restrictive covenants, however, should be reasonable. If they’re overly broad or unnecessary, they could potentially be deemed invalid if an employee or former employee chose to challenge an agreement they to which they were being held.

A federal ban could happen this year

The move by states like Minnesota that are choosing to ban non-competes comes as the Federal Trade Commission (FTC) has announced that it plans to prohibit them nationwide. It estimates that doing so would result in an overall increase in wages of nearly $300 billion annually.

Any contracts – including employee and independent contractor agreements – should always be drafted, negotiated or modified only with legal guidance. This can help your business avoid unnecessary and costly legal entanglements.