On May 24, 2023, Governor Walz signed into law a significant change to the enforceability of employee covenants not to compete. In any employment agreement entered into on or after July 1, 2023, post-employment covenants not to compete will be void and unenforceable. Iowa employers conducting business with Minnesota employees, including remote employees, should take note of the following information and take any steps necessary to modify their Minnesota employment agreements moving forward.
Under Minnesota’s law, employee covenants not to compete are widely defined to encompass all agreements that restrict an employee from: (1) working for another employer for a specified period of time, (2) working in a specified geographic area, or (3) working for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement. Importantly, this definition does not include non-solicitation agreements – it is still permissible for employers to prevent employees from using client lists, using contact lists, or soliciting customers of the employer. Additionally, “employee” is defined under Minnesota law to include independent contractors.
There are two exceptions to this broad ban on covenants not to compete. Employee covenants not to compete can be used after the sale of a business in order to prevent the seller from carrying on in a similar business within a reasonable geographic area and for a reasonable length of time. Employee covenants not to compete may also be used upon the dissolution of a business in order to prevent parties from carrying on in a similar business within a reasonable geographic area where the business has been transacted.
Finally, this law also prevents employers from entering into agreements with Minnesota employees requiring the adjudication of claims arising in Minnesota outside of Minnesota. This portion of the law may have important ramifications for choice-of-law or venue clauses contained in Iowa employers’ employment agreements with Minnesota employees.
Iowa employers who will be affected by the expansive changes in Minnesota law should do the following:
- Revise their standard employment agreement for use with Minnesota employees to remove any covenants not to compete. Non-solicitation, confidentiality, or non-disclosure clauses can be modified to ensure that employers will be protected in the absence of a non-compete provision. Employers should utilize the revised agreement moving forward.
- Revise their standard employment agreement for use with Minnesota employees to modify any choice-of-law or venue clauses that may be contained in the agreement. Employers should utilize the revised agreement moving forward.
- Contact a member of the BrownWinick Employment Law team if you are unsure how your business will be affected by the changes to Minnesota law.
In addition to these changes in Minnesota law, Iowa employers should be aware of a memo issued by the National Labor Relations Board’s General Counsel on May 30th, 2023. The memo outlined General Counsel Jennifer Abruzzo’s position on non-compete agreements: except in limited circumstances, non-compete agreements violate Section 8(a)(1) of the National Labor Relations Act. Abruzzo stated that overbroad non-compete agreements can chill employees’ ability to negotiate with their employer regarding working conditions and they can chill employees’ ability to accept employment with a local competitor to obtain better working conditions. Further, Abruzzo stated that it is unlikely that an employer’s justification for a broad non-compete agreement would be reasonable as imposed on low-wage or middle-wage workers who do not have routine access to trade secrets or other protectible business interests. Iowa employers should review their standard non-compete provisions to ensure that they are narrowly tailored to protect their legitimate business interests. Additionally, Iowa employers could consider retracting non-compete provisions entirely for low-wage or middle-wage workers.
If you have any questions about your business or your employees, please contact me or your BrownWinick attorney. We are here to offer trusted legal advice and add value to any matter, including those with complex and novel issues. Special thanks to summer associate, Becca Coleman for her assistance with this blog.
