Minnesota's Non-Compete Ban: The Statute

Minnesota Statutes § 181.988, enacted as part of the 2023 Omnibus Jobs, Economic Development, Labor and Industry Bill, became effective July 1, 2023. The statute is remarkably brief and direct: "A covenant not to compete is void and unenforceable." This categorical prohibition makes Minnesota one of a small group of states — along with California, North Dakota, and Oklahoma — that refuse to enforce post-employment non-compete agreements for employees as a matter of statutory law.

The statute defines "covenant not to compete" as an agreement between an employer and an employee that restricts the employee, after the termination of employment, from performing: (a) work for another employer for a specified period of time; (b) work in a specified geographic area; or (c) work for another employer in a capacity that is similar to the employee's work for the employer that is party to the agreement. This definition is broad enough to capture virtually all traditional non-compete arrangements, including geographic restrictions, time-limited competitive employment restrictions, and functional restrictions.

Retroactive Voidability: Challenging Older Agreements

Unlike some state non-compete bans that apply only prospectively (to agreements signed after the effective date), Minnesota's § 181.988 contains provisions that allow employees to challenge non-compete agreements signed before July 1, 2023. Specifically, the statute provides that an employer may not enforce any covenant not to compete signed by an employee, including those signed before the effective date, against a Minnesota employee.

This retroactive application is significant for employees in Minnesota who signed non-compete agreements years or even decades before the law changed. Those employees may now be able to declare their non-competes void and accept competitive employment that would previously have been restricted. However, employers have challenged the retroactive application on constitutional grounds (contracts clause, due process), and this area of law is still developing through Minnesota courts. The safest interpretation for employees is that non-competes signed before July 1, 2023 are at minimum legally questionable and may be declared void if challenged.

What happens to existing non-competes in multi-state agreements? Many employment agreements for Minnesota employees contain a non-Minnesota choice of law clause — specifying, for example, that Delaware or Texas law governs the agreement. Minnesota § 181.988 includes a provision stating that any choice of law clause that purports to apply another state's law to circumvent the prohibition is void. This means that a Texas-law choice of law clause in an agreement with a Minnesota employee does not allow the employer to enforce a non-compete that would be void under Minnesota law. Minnesota's prohibition applies regardless of the governing law clause.

Non-Solicitation Agreements: Still Valid in Minnesota

The Minnesota non-compete ban does not extend to non-solicitation agreements. Customer non-solicitation clauses — which prevent a departing employee from directly soliciting the employer's customers for a defined period — and employee non-solicitation clauses — which prevent the departing employee from recruiting former colleagues — remain enforceable in Minnesota, subject to the general reasonableness requirements developed by Minnesota courts under common law.

Minnesota courts evaluate non-solicitation agreements under a reasonableness standard that considers: whether the restriction is necessary to protect the employer's legitimate business interest; whether the duration is reasonable (typically one to two years for non-solicitation); whether the scope is appropriately limited to customers or employees with whom the departing employee had direct contact; and whether the restriction imposes undue hardship on the employee. Courts will not enforce non-solicitation clauses that are so broad as to effectively function as non-competes in disguise.

Post-July 1, 2023, Minnesota employers have increasingly relied on non-solicitation agreements, trade secret protections, and confidentiality agreements to protect their legitimate business interests following the loss of non-compete protection. Drafting narrowly tailored, role-specific non-solicitation clauses has become more important than ever.

Trade Secret Protections Remain Fully Available

Minnesota's non-compete ban does not affect trade secret protection. Minnesota adopted the Minnesota Uniform Trade Secrets Act (MUTSA), Minn. Stat. § 325C, which provides robust protection for trade secrets, including the right to seek injunctive relief, damages for misappropriation, and attorney's fees in cases of willful and malicious misappropriation. The MUTSA protections apply independently of any non-compete agreement and remain fully available to Minnesota employers whose trade secrets are threatened by departing employees.

Importantly, a court may still enjoin a departing employee from accepting competitive employment if — and only if — the court finds that the specific role would inevitably lead to the disclosure of the employer's trade secrets. This "inevitable disclosure" injunction is distinct from a non-compete and requires a fact-specific showing that the new role cannot be performed without drawing on the employer's specific trade secrets. Minnesota courts have granted such injunctions in limited circumstances, typically in cases involving highly specialized technical knowledge with no practical substitute.

Confidentiality agreements that function as non-competes may be void. Minnesota courts will scrutinize confidentiality and NDA provisions that are drafted so broadly as to effectively prohibit competitive employment. An NDA that prohibits an employee from disclosing any information they learned during employment — without limiting this to genuinely confidential or proprietary information — may be deemed a disguised non-compete and void under § 181.988. Confidentiality provisions must be carefully limited to genuinely proprietary information and should not be used as a backdoor non-compete.

Impact on Multi-State Employers

For employers with employees across multiple states, Minnesota's non-compete ban creates the need for jurisdiction-specific employment agreement templates. An employer based in Ohio whose employees include Minnesota residents must ensure that those employees' agreements do not contain non-compete provisions — or that any such provisions are expressly limited to other states where the employee works and are clearly not applicable to the employee's activities in Minnesota.

The practical challenge for multi-state employers is identifying which employees are subject to Minnesota's ban. This includes: employees who are residents of Minnesota; employees who primarily work in Minnesota; and potentially employees in neighboring states who regularly work in Minnesota. Given the statute's choice-of-law override provisions, a conservative approach is to treat any employee with significant Minnesota work as subject to § 181.988.

Comparison to Other Total Non-Compete Bans

Minnesota's non-compete ban places it in a small group of states with categorical prohibitions, but with some differences in approach:

Unlike California, Minnesota's ban does not include explicit exceptions for business-sale non-competes. Minnesota courts will likely address this gap through case law, but until they do, the safest interpretation is that all employee non-competes — including those executed as part of a business acquisition — are void in Minnesota unless a court creates a narrowing interpretation.

Practical Steps for Minnesota Employers After July 1, 2023

  1. Audit all existing employment agreements with Minnesota employees and remove or flag non-compete provisions.
  2. Update standard employment agreement templates to remove non-compete provisions for Minnesota hires.
  3. Strengthen confidentiality and NDA provisions — ensure they are narrowly limited to genuinely proprietary information and do not sweep in general industry knowledge.
  4. Draft specific, narrowly tailored non-solicitation clauses covering only customers and employees with whom the particular employee had direct contact.
  5. Implement trade secret identification programs — conduct trade secret audits to document what information qualifies as a trade secret and take reasonable measures to protect it.
  6. Consider garden leave arrangements for critical employees — providing compensation during a transition period, while the employee remains employed (and thus bound by confidentiality duties), can protect business interests without a post-employment restriction.