New proposed legislation introduced in the Minnesota House of Representatives would invalidate effectively all employee non-compete agreements if passed. 

On February 11, 2013, Democratic-Farmer-Labor party members Joe Atkins and Alice Hausman introduced H.F. No. 506.  The bill was read and referred to the Committee on Labor, Workplace and Regulated Industries, a committee chaired by Rep. Sheldon Johnson (DFL-St. Paul).  The proposed legislation—which essentially tracks California Business and Professions Code sections 16600 through 16602.5—would invalidate all non-compete agreements between an employer and its employees.  No current statute specifically addresses treatment of non-compete agreements in Minnesota. 

Neither Rep. Atkins nor Hausman appear to have sponsored similar legislation in the more recent legislative regular sessions. 

Nonetheless, while Minnesota’s governorship and legislature are currently controlled by the DFL (by an 11-vote margin in the Senante and a 12-vote margin in the House), it appears unlikely that this legislation will become Minnesota law, at least in 2013.  This is likely given the strong push that Gov. Mark Dayton has made toward jobs creation and business attraction during his first two years in office.  Furthermore, no hearings have been scheduled regarding this bill yet.     

The full text of the proposed bill reads:

Section 1 [325D.72] Noncompete Agreements Void.

A contract that prohibits a party to that contract from exercising a lawful profession, trade, or business is void with the following exceptions:

(1)  a seller of a business’ goodwill can agree to refrain from carrying on a similar business in a specified county, city, or party of one of them if the buyer carries on a like business in that area;

(2)  partners dissolving a partnership can agree that one or more of them will not carry on a similar business in a specified county, city, or part of one of them where the partnership transacted business; and

(3)  a member, when dissolving or terminating their interest in a limited liability company, can agree that the member will not carry on a similar business in a specified county, city, or part of one of them where the business has been transacted if another member or someone taking title to the business carries on a like business in that area.

Effective Date.  This section is effective the day following final enactment.

Minnesota businesses and out-of-state businesses who employ Minnesota employees must be mindful of the potentially chilling consequences if this legislation becomes law. 

Like California Business and Professions Code section 16600, enactment of a similar statute in Minnesota would have potentially devastating consequences on Minnesota employers who have utilized non-compete agreements as a means to protect their business interests.  For example, in California, the California Supreme Court has interpreted section 16600 to invalidate any contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind, which it deemed to include any non-compete or customer non-solicitation restrictions.  Edwards v. Arthur Anderson LLP, 44 Cal 4th 937 (2008).  

Unlike California, Minnesota has not historically treated noncompetition agreements with the sort of disdain that California has.  Indeed, Minnesota courts have routinely upheld narrowly tailored restrictive covenants, including non-compete, customer non-solicitation, and anti-raiding provisions.  The proposed legislation would be bad for Minnesota businesses and would also place Minnesota outside the mainstream of current United States non-compete law.  While this legislation is not likely to be adopted in 2013 (hopefully), Minnesota businesses or businesses that employ Minnesota employees should continue to closely monitor this situation.