Gov. Tim Walz signed a comprehensive Job Creation, Economic Development and Labor Finance Act into law on May 24, which includes a ban on non-compete agreements between employers and employees signed after July 1, 2023. Dan Prokott, a partner at Faegre Drinker, discussed the implications of this legislation for businesses with Minnesota Lawyer.
Twenty percent of states prohibit non-compete agreements for low-income hourly workers. Minnesota law is broader and prohibits most non-compete clauses. The new law restricts post-employment or post-employment agreements that prohibit employees and independent contractors from working for a specified period of time for a competitor, in a specified geographic area, or in a similar capacity for another employer. The only exception is non-competition clauses that were agreed at the time of sale or in the run-up to the liquidation of the business.
Importantly, Minnesota law doesn’t just apply to low-income earners, which Prokott says is a concern for certain businesses. While much of the media coverage has focused on the impact of non-compete obligations on low-income workers – such as Jimmy John’s delivery drivers – Prokott claims there has been less emphasis on how non-compete obligations affect higher-ranking, better-paid workers.
“Most of the clients I work with want a non-compete clause that doesn’t apply to low-income employees,” says Prokott. “People like high-level executives or high-earning, talented individuals or developers of product services or intellectual property are the biggest concerns.”
Even with non-competition clauses off the table, there are other ways companies can protect themselves. “The law specifically states that the ‘non-compete clause’ does not cover certain types of agreements. So it doesn’t include non-solicitation agreements, agreements to protect trade secrets or confidential information, agreements to limit the use of customer or contact lists, or agreements to solicit customers,” says Prokott.
“For employees whose primary concern is poaching clients from their previous employer, such as B. salespeople or account managers, advertising prohibition restrictions may still be imposed on these types of employees. With the non-compete clauses merely prohibiting them from working for another competitor – although they may not be allowed to do so – an employer may still be able to achieve the same desired effect for certain types of workers by still requiring non-solicitation, non-disclosure of confidential information, etc .applies trade secret agreement.
However, Prokott does not believe that the existence of these other mechanisms fully protects organizations. “For other types of employees, the inability to invoke a non-compete obligation could be far more serious,” Prokott claims. “Employees may be executive or executive level employees, or employees involved in creating intellectual property for an employer – code, design and the like. For these types of employees, it is actually not a problem to ban them from soliciting customers.”
“A non-compete clause was the most important and important way to protect the company’s business because a non-compete clause doesn’t get far enough for this particular type of employee. They’re not out there courting customers. “They’re out there running and starting businesses, or they value their name, likeness, and image that a direct competitor could now exploit,” Prokott claims. “It’s debatable whether that’s good or bad, but it’s a real impact of the law.”
“The previous employer invested time, resources, and benefits to improve this person’s public image. Now they may be able to use that for a direct competitor,” Prokott assures.
In addition to this concern, former employers may also fear that they no longer have control over confidential information or trade secrets. “Another concern is that they could misuse confidential information or trade secrets, which while it would still be prohibited – you could still sue the employee for the confidential information or trade secrets – the former employer has no insight into what his former supervisor does.” or author, if intellectual property remains with the new employer,” emphasizes Prokott. “There is a serious concern that the former employee is misusing confidential information and trade secrets and the former employer simply doesn’t know and has no real power to prevent that employee from working at the competitor because of the new law.”
Prokott has been busy advising clients wondering how the new law might affect their contracts. “Take a close look at your employment contracts,” advises Prokott. “Consider what changes are appropriate given the new law.”
Prokott also says it’s important for companies operating in states other than Minnesota to review their agreements even more carefully. “Other states have enacted a number of different laws, so I encourage my clients to see if they have employees in other states that have enacted non-compete laws with specific requirements, such as Massachusetts or Colorado,” Prokott explained. “Make sure you think about the different versions of agreements or the different provisions in the model agreement that might need to be included for different states. Think carefully about strict wording around protection of confidential information and trade secrets and prohibition of advertising, and ensure scope is covered as broadly as possible in light of the new law protecting the company’s legitimate business interests.”
“The other part of the law that employers need to be aware of is choice of law and limitations on jurisdiction,” notes Prokott. The new law restricts contractual provisions that require non-Minnesota law or jurisdiction for disputes. “Customers need to be aware of whether, if they have Minnesota-based employees, what type of agreements they are having signed, whether they contain non-Minnesota-based choice of law and venue provisions, and whether those need to be modified in light of the new terms.” Law?”
While the landscape regarding non-competition clauses is changing at the state level, there is also movement at the federal level. In January, the FTC proposed a statewide ban on non-compete agreements. Then, in May, the General Counsel of the National Labor Relations Board issued a memo on non-compete agreements, stating that most of these agreements violate United States labor law. “It’s not law, it’s a memo, and it didn’t change anything in the National Labor Relations Act,” Prokott said. “But there is one more thing that employers need to consider when making arrangements with workers who are protected under the National Labor Relations Act.”