Gov. Tim Walz has signed or is expected to sign the Minnesota legislature’s Jobs and Economic Development and Labor Omnibus Budget Bill, bringing broad change to the Minnesota employment law landscape. Notably, the new law bans post-employment noncompete agreements in Minnesota, creates state-wide paid sick and safe time leave, prohibits restrictive franchise agreements, modifies wage disclosure protection law, provides additional protections for pregnant and nursing workers, prevents mandatory employer-sponsored meetings, and creates additional paystub requirements for construction workers, among other things. Gov. Walz signed the paid family and medical leave law, creating a new paid family and medical leave program funded by employer and employee payroll taxes and providing up to 12 weeks of paid leave in a single benefit year for an employee’s own serious health condition and up to 12 weeks of paid leave in a single benefit year for bonding, safety leave or family care, with a cap of no more than 20 weeks of total combined leave in any single benefit year. The Minnesota legislature also ended its 2023 session after passing a recreational cannabis law, amending the state’s drug and alcohol testing laws following the legalization of recreational marijuana, which is anticipated to be signed into law by Gov. Walz this week.
On May 11, 2023, the Minnesota Legislature agreed to a new law rendering void and unenforceable all future covenants not to compete, with limited exceptions for agreements entered into in connection with the sale or dissolution of a business. Following a final vote in the House and Senate, the law will be sent by Gov. Tim Walz for his signature. The law is written to take effect July 1, 2023, and to apply to contracts and agreements entered into on or after that date. With enactment, Minnesota will become the fourth state to impose a complete ban on employment-related noncompetes (joining California, Oklahoma and North Dakota).
The law prohibits any noncompete agreement with an employee or independent contractor that restricts the person from working for another business after termination of employment or independent contractor engagement regardless of a person’s income, with only two very limited carveouts for noncompetes agreed upon (1) during the sale of a business where the agreement prohibits the seller from carrying on a similar business within a reasonable geographical area for a reasonable period of time, or (2) in anticipation of the dissolution of a business where the dissolving partnership or entity agrees that all or any number of the partners, members, or shareholders will not carry on a similar business in a reasonable geographical area for a reasonable period of time. Subject to those limited exceptions, the law provides that any “covenant not to compete” contained in a contract is void and unenforceable. Importantly, a “covenant not to compete” does not include nondisclosure, confidentiality, trade secret, or non-solicitation agreements (including specifically those restricting the ability to use client or contact lists or restricting the solicitation of customers). Also, because “covenant not to compete” is defined in terms of prohibiting conduct “after termination of the employment,” the new law will not prohibit agreements that restrict an employee or independent contractor from working for another business while performing services for a business.
2022 was a relatively quiet year in terms of noncompete developments. However, both state legislatures and courts continued to take steps to narrow the circumstances under which noncompetition and employee non-solicitation agreements may be enforced. As such, employers remain well advised to continue to: (1) be selective in identifying those categories of employees required to sign noncompete agreements; (2) rely on choice of law and venue provisions as allowed to maximize the chances of enforceability; (3) keep a keen eye on statutory developments; and (4) avoid no-poach agreements with other employers.
The top 10 non-compete law developments in 2021 demonstrated a continued hostility by lawmakers and courts toward noncompetition and no-hire agreements, as well as the need for employers to stay current on the diverse state-specific limitations governing restrictive covenants, new federal activity in the area and ongoing case law developments. In light of these trends, national employers would do well to (1) be selective in identifying those categories of employees required to sign such agreements, (2) rely on allowable choice-of-law and venue provisions to maximize the chances of enforceability, (3) keep a keen eye on likely federal developments in the year ahead and (4) avoid no-poach agreements with employers as a poor substitute for narrowly tailored employee non-compete agreements.
Retaliation and whistleblower claims are on the rise nationally, and Minnesota is no exception to this trend. In part, this is because plaintiffs’ counsel perceive such claims — particularly claims arising under the broad Minnesota Whistleblower Act (MWA) — as relatively easy to get past a motion for summary judgment and to trial. However, four recent decisions issued by Minnesota courts suggest that this perception may not be well founded.
In each decision (two opinions by the U.S. Circuit Court of Appeals for the Eighth Circuit, one opinion by the Minnesota Court of Appeals and one opinion by the U.S. District Court for the District of Minnesota), the court granted or affirmed the granting of summary judgment in favor of the employer. These decisions provide useful guidance in assessing potential arguments to defeat a retaliation claim on a motion for summary judgment.
In the best of economic times, some courts can be reluctant to grant immediate injunctive relief and enjoin an employee from working in order to enforce employee post-employment restrictive covenants. Now that we are in the midst of a global pandemic and an economic recession, that challenge has grown. Current economic considerations are causing some courts to weigh the “balance of harms” on injunctive relief applications in favor of employee defendants who are faced with the difficulty of finding other work in an economic downturn with high unemployment. Nevertheless, our review of recent decisions from around the country indicates that courts remain willing to consider injunction motions on an emergent basis to enforce restrictive covenants, particularly where there is a threat of trade secret misappropriation.