Employee Mobility and Restrictive Covenants - Page 4 of 15

NLRB GC’s Latest Guidance Expands Restrictions to Noncompete Provisions

The General Counsel of the National Labor Relations Board (the Board) issued new guidance announcing her position that certain noncompete agreements violate the National Labor Relations Act. Citing McLaren Macomb, the General Counsel urged the Board to adopt her position regarding noncompete agreements, arguing that the Board already embraced a similarly restrictive standard for analyzing the lawfulness of severance agreements.

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Minnesota’s 2023 Legislative Session Brings Major Changes to Minnesota Employment Law

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.

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Minnesota Legislature Agrees to Complete Ban on Noncompetes

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.

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Delaware Is Increasingly No Longer a Safe Bet for Restrictive Covenants and Default Choice of Law Provisions

Employers should be careful before defaulting to Delaware choice of law for restrictive covenant agreements. Historically, Delaware law presented a good option, particular for Delaware entities. However, a series of court decisions out of that state have severely limited the advantages of that approach.

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Non-Competes Will Continue to Be Under Attack in 2023

The U.S. Federal Trade Commission (FTC) recently issued a notice of proposed rulemaking that would dramatically change the playing field for employers who have post-employment non-compete agreements with employees or have a practice of requiring such agreements as a condition of employment. The FTC’s proposed rule is open for public comment until March 20, 2023. Whether the FTC’s proposed rule (once finalized) will survive legal challenges is a hotly debated topic among members of the legal community, many of whom believe that Congress did not clearly empower the FTC with the authority to enact such a broad rule, and therefore the rule will not survive given the U.S. Supreme Court’s 2022 decision in West Virginia v. EPA.

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FTC Seeks Feedback on Proposed Rule on Use of Non-Competition Agreements

The Federal Trade Commission announced that it will hold a virtual public forum on Thursday, February 16, 2023, to address its proposed rule on the use of non-competition agreements, as well as certain non-solicitation and non-disclosure agreements. The purpose of this forum is to examine the proposed rule and provide an avenue for individuals, including both employees and employers, to voice their opinions and discuss their experiences with non-compete agreements.

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