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On May 25, 2023, the Second Circuit issued an opinion in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Group, Inc., No. 21-1370 (2d Cir. 2023) that provides guidance regarding recoverable damages in trade secret misappropriation disputes under the Defend Trade Secrets Act (“DTSA”).

The Second Circuit held that under the DTSA unjust enrichment damages cannot be awarded for avoided development costs absent evidence that the trade secret’s value was diminished by the misappropriation. The Second Circuit also provided clear instruction on what remedies are available under the DTSA, limiting the amount that a plaintiff can recover.  An injured party may be entitled to both equitable relief and monetary damages upon a finding of liability under the DTSA.  As to compensatory damages, the DTSA permits the recovery of: (1) “damages for actual loss caused by the misappropriation;” and (2) “damages for any unjust enrichment caused by the misappropriation…that is not addressed in computing damages for actual loss.”

The Second Circuit clarified that damages for unjust enrichment are meant to apply to instances such as “where the value of the secret is damaged, or worse yet – destroyed.”  On this basis, the court vacated the jury’s $285 million compensatory damage award to TriZetto which was predicated on Syntel’s avoided development costs, that is, the money Syntel saved by misappropriating a competitor’s trade secret rather than developing it itself.  The court declared that when deciding whether unjust enrichment in the form of avoided costs is available to an injured party, the relevant inquiry is into whether the misappropriation injured the party beyond its actual lost profits.

In this instance, the Second Circuit held that because Syntel’s misappropriation “did not diminish, much less destroy,” the commercial value of TriZetto’s trade secrets, and because the district court had enjoined Syntel’s use of the trade secrets, “TriZetto suffered no compensable harm” beyond its lost profits.  Thus, as a matter of law, TriZetto was “not entitled to avoided costs as a form of unjust enrichment damages.”  In reaching this conclusion, the Second Circuit expressed concern that by focusing only on the misappropriating party’s saved expenses to award avoided costs without also examining the damage suffered by the injured party and the effect of injunctive relief, “avoided costs would be available as unjust enrichment damages in any case of misappropriation, even where a trade secret owner suffers no compensable harm beyond its lost profits or profit opportunities.”  In the view of the court, this “would permit avoided costs awards that are more punitive than compensatory.”

Syntel Sterling demonstrates that, at least in the Second Circuit, unjust enrichment damages, including avoided costs, are not available without evidence that the misappropriation harmed the commercial value of the trade secret.

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Following the recent passage through the New York State Senate, on June 20, 2023, the New York State Assembly voted to approve a bill, which, if enacted, would ban all post-employment non-compete agreements. We previously reported on the key features of Senate Bill S3100A here. Assembly Bill A1278 is now headed to Governor Hochul’s desk for review, and she has 30 days from receipt to consider the Bill. Given her 2022 State of the State agenda in which Governor Hochul explicitly wrote in favor of legislation to eliminate certain non-compete agreements, expectations are that she will sign the Bill into law. While several states have recently enacted legislation placing income restrictions on non-competes, New York is poised to prospectively ban all employee non-competes regardless of income, making it the fifth state to do so after California, North Dakota, Oklahoma, and Minnesota. We will continue to monitor and report on any further developments.

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Wednesday, June 21, 2023
3:00 p.m. to 4:00 p.m. Eastern
2:00 p.m. to 3:00 p.m. Central
1:00 p.m. to 2:00 p.m. Mountain
12:00 p.m. to 1:00 p.m. Pacific

REGISTER HERE

In today’s digital age, trade secrets are an essential asset for businesses to stay ahead of the competition. As businesses continue to operate remotely, protecting trade secrets has become increasingly important. Seyfarth’s third installment in the 2023 Trade Secrets Webinar Series will provide valuable insights and practical tips on how to manage and safeguard your company’s confidential information in a remote work environment.

During the webinar, you will learn about the following topics:

  • The importance of trade secret protection in a remote work environment
  • The risks associated with remote work and trade secret protection
  • Strategies for safeguarding trade secrets in a remote work environment
  • Best practices for managing trade secrets in a remote work environment

Speakers

Katherine Perrelli, Partner, Seyfarth Shaw LLP
Dawn Mertineit, Partner, Seyfarth Shaw LLP
Cathryn Johns, Associate, Seyfarth Shaw LLP

REGISTER HERE

If you have any questions, please contact Sadie Jay at sjay@seyfarth.com and reference this event.

This webinar is accredited for CLE in CA, IL, NJ, and NY. Credit will be applied for as requested for TX, GA, WA, NC and VA. The following jurisdictions may accept reciprocal credit with these accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, CT, NH. The following jurisdictions do not require CLE, but attendees will receive general certificates of attendance: DC, MA, MD, MI, SD. For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used in other jurisdictions for self-application. Please note that attendance must be submitted within 10 business days of the program taking place. If you have questions about jurisdictions, please email CLE@seyfarth.com.

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New York is poised to join the growing number of states enacting legislation to curtail the use of non-compete agreements by employers. On June 7, 2023, the New York State Senate voted to pass Bill No. S3100A, which, if enacted, would ban all post-employment non-compete agreements, along with Bill No. S6748, which is generally aimed at preventing the establishment of monopolies, monopsonies, and restraints of trade by, among other things, curtailing  the use of non-compete agreements. The Bills are currently awaiting passage by the New York State Assembly and are expected to be signed by Governor Kathy Hochul.

Continue Reading New York State Senate Approves Bills Banning Use of Non-Compete Agreements
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As various states and federal agencies seek to prohibit or limit the use of non-competes, Connecticut joined the trend. Connecticut’s new legislation, SB 9, expands restrictions on the enforceability of physician non-competes and extends these restrictions to advanced practice registered nurses (APRNs) and physician assistants (PAs).

Connecticut: SB 9

On June 5, 2023, the Connecticut Senate passed SB 9, sending it to Governor Ned Lamont to sign into law. The governor’s signature is a formality as the bill passed both houses of the Connecticut Legislature unanimously. By limiting the circumstances in which non-competes are enforceable under Connecticut law, SB 9 adds additional restrictions to the use of such covenants in physician employment agreements while extending these restrictions to APRN and PA employment agreements. Notably, the bill was significantly amended prior to passage with earlier versions banning non-competes for physicians, APRNs and PAs entirely.

Continue Reading New Non-Compete Health Care Restrictions in Connecticut
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Seyfarth Shaw’s Trade Secrets group has secured a notable position as one of the best in the country, according to the esteemed Legal 500 United States 2023 edition. This recognition reaffirms Seyfarth’s commitment to excellence in the field of trade secrets law. Corporate counsel feedback has played a pivotal role in determining this ranking, with Seyfarth partners Michael Wexler, Robert Milligan, Kate Perrelli, and Dawn Mertineit earning a spot in the editorial’s “Leading Lawyers” category, while Joshua Salinas is recognized as a “Rising Star.” Jesse Coleman, Daniel Hart, and James Yu are also mentioned in the guide for their exceptional client service.

The Legal 500 United States guide emphasizes Seyfarth’s Trade Secrets team’s exceptional ability to effectively communicate complex legal issues and provide multiple resolution options in a clear and concise manner. This expertise has empowered client companies to make well-informed and timely decisions. Clients have praised the team’s efficiency in communication and recommendations, enabling them to prioritize appropriately. Additionally, the guide highlights the team’s high-quality service, responsiveness, quick turnaround, and friendly approach.

Renowned as an independent guide offering comprehensive coverage of legal services, The Legal 500 United States is widely regarded for its authoritative assessment of law firm capabilities. It acknowledges and rewards exceptional in-house and private practice teams and individuals based on extensive research conducted over the past 12 months. The awards are bestowed upon elite legal practitioners, recognizing their outstanding contributions to the dynamic and ever-evolving US legal market.

Seyfarth Shaw’s Trade Secrets group’s inclusion in the Legal 500 rankings reinforces their position as a trusted and respected authority in trade secrets law. With their dedication to providing exceptional legal counsel, clear communication, and efficient service, Seyfarth continues to serve as a valuable partner for companies seeking comprehensive trade secrets protection and strategic guidance in today’s highly competitive business environment.

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The Nevada legislature passed new legislation recently that essentially bans all non-compete clauses in physician contracts while severely limiting the instances in which a hospital or psychiatric hospital may employ a physician as an employee, rather than as a contractor. Assembly Bill 11 was introduced in February 2023 and had passed both the Senate and Assembly by May. However, Nevada Governor Joe Lombardo vetoed the bill in June, leaving AB 11’s future uncertain. The bill passed both legislative houses just shy of a veto-proof majority. If ultimately passed over the veto, AB 11 would make the following changes:

Physician Non-competes: Dead on Arrival?

Section 7.8 makes the largest change to existing law, prohibiting virtually all noncompetition covenants in physician contracts. The relevant text proscribes noncompetition covenants which “restrict a provider of health care employed by or contracted with a hospital in [Nevada] from providing medical services at another medical facility or office during or after the term of the employment or contract.” As indicated, section 7.8 most notably applies not only to covenants which restrict competition after the terms of employment, but those that restrict it during as well.

Such covenants will be deemed void and unenforceable, regardless of whether they satisfy Nevada’s requirements to enforce noncompetition covenants: (1) Must be supported by valuable consideration; (2) Must not impose any restraint that is greater than required for the protection of the employer; (3) Must not impose undue hardship on the employee; and (4) Imposes restrictions appropriate in relation to the valuable consideration.

Physician Employment: Contractors, not Employees

While it is a practice in Nevada that a physician works as a contractor rather than an employee of a hospital, AB 11 would codify this practice. Section 1 of the bill prohibits a hospital or psychiatric hospital from employing a physician as an employee “for the purpose of engaging in the practice of medicine, homeopathic medicine or osteopathic medicine.”

Existing law permits a county hospital or hospital district, a private nonprofit medical school, a nonprofit medical research institution or certain mental health facilities operated by divisions of the Department of Health and Human Services to employ physicians in certain circumstances. Section 1 additionally exempts hospitals or psychiatric hospitals participating in a graduate program approved by the Accreditation Council for Graduate Medical Education or its successor organization, or hospitals or psychiatric hospitals owned or operated by the State Government from its blanket prohibition.

Section 2 further clarifies that medical facilities “conducted by and for the adherents of any church or religious denomination for the purpose of providing care and treatment in accordance with the practices of the religion of the church or denomination,” or “operated and maintained by the United States Government or any agency thereof” are exempt from section 1’s blanket prohibition.

Limiting Physician Speech: Sharp Curtailments

Existing law already makes it unlawful for employers to discriminate against any employee for inquiring about, discussing or voluntarily disclosing his or her wages to another employee. Section 7.3 expands these protections by prohibiting hospitals or psychiatric hospitals from including in a physician contract provisions which prevent the physician from discussing: “(1) His or her wages or salary; (2) Any harassment, violence or retaliation he or she or any other person experience at the hospital; or (3) Any other information relating to the working conditions at the hospital.” This section also prohibits hospitals or psychiatric hospitals from taking any action to prevent a physician from discussing such topics or working for another medical facility or office.

Enforcement and Applicability: A (Brief) Reprieve for Employers

The provisions of sections 7.8 and 7.3 would be subject to administrative enforcement by the Labor Commissioner. However, section 9 states that sections 1, 7.8 and 7.3 “do not apply to any contract existing on the effective date of this act.” But sections 7.8 and 7.3 will apply to any such contract that is renewed after AB 11 is passed.

AB 11 in Relation to Other Legal Developments

Nevada’s potential enactment of AB 11 stands in contrast to recent legislative action out of Iowa. On June 1, Iowa Governor Kim Reynolds signed HB 357 into law, narrowing the scope of HB 2521. Enacted less than a year ago, HB 2521 prohibits healthcare employment agencies from “[r]estrict[ing] in any manner the employment opportunities of an agency worker by including a non-compete clause in any contract with an agency worker or health care entity.” HB 357 narrows the scope of this law by removing the non-compete restriction for direct care service providers (those who provide health care services to consumers through “person-to-person contact”).

We will continue to follow the developments on this front as state legislatures continue to propose legislation regarding restrictive covenants.

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Over last week, two seemingly unconnected events happened that impact restrictive covenant and labor law. First, the National Labor Relations Board’s General Counsel, Jennifer Abruzzo, issued a memorandum opining that certain non-compete agreements may violate the National Labor Relation Act by suppressing workers’ ability to engage in protected concerted activity. Second, the Supreme Court issued the Glacier Northwest, Inc. v. Teamsters decision, where it held that allegedly intentional property destruction by a union was not covered by Garmon preemption, a preemption rule that restricts state courts from adjudicating state law claims that actually or arguably constitute an unfair labor practice. But in that ruling, a majority of the justices confirmed Garmon remains good law.

So putting the two together, does this mean that all non-compete litigation is preempted? After all, if a non-compete “reasonably chills” an employee’s ability to engage in protected concerted activity, and Garmon still operates to prevent state law claims that actually or arguably impede on the NLRB’s jurisdiction to adjudicate unfair labor practices, then a lawsuit to enforce a non-compete should be preempted, right?

Well, probably not. The reasoning in the General Counsel’s memo would not extend to statutory supervisors, and there is minimal existing legal support for the NLRB’s continued annexation of matters traditionally within state jurisdiction.

The General Counsel’s Memo

My colleagues previously posted about the General Counsel’s memo here. In short, the NLRB’s General Counsel released a memo theorizing that non-competes could impair an employee’s right to engage in concerted activity protected by Section 7 of the National Labor Relations Act. While the General Counsel seems intent on creating penumbra Section 7 rights that remain after employment ends, that position exists only in theory at this point. But even potential action by the NLRB creates potential preemption challenges to restrictive covenants. 

A Brief Overview on Garmon

The NLRB is meant to be the first and primary forum to adjudicate matters invoking federal labor policy. To provide the Board with space to cultivate labor law free from state interference, Garmon preemption carves out from state regulation activity that is both actually and arguably prohibited by the NLRA.

Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8, in turn, makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” Section 7.

When a controversy is actually or arguably preempted by Garmon, a reviewing court should instead defer to the NLRB’s primary jurisdiction to avoid “the specter that state law will say one thing about the conduct underlying the dispute while the NLRA says another.” The animating rationale for preemption is that the NRLB—not states—should set federal labor policy and define the contours for what qualifies as an unfair labor practice and collective activity.

The Potential Impact on Restrictive Covenant Litigation

The General Counsel’s position, if it were actually adopted, threatens to create a procedural mess in restrictive covenant litigation. If the General Counsel got her wish and a non-compete agreement could, in fact, constitute an unfair labor practice by unduly restricting an employee’s ability to engage in protected concerted activity, then a court would arguably be unable to enforce the agreement or even determine whether it was enforceable. That question would first go to the Board. Employees could potentially complicate an action to enforce the agreement further by preemptively filing an unfair labor practice charge against the employer, thus creating a potential retaliation claim against the employer if the employer proceeded with filing a lawsuit.

Of course, this risk is theoretical without further evidence that the NLRB would adopt the position taken by the General Counsel. And the General Counsel’s memo, even if adopted, would only cover statutory “employees” under the NLRA, because generally only statutory employees under the NLRA have a right to exercise Section 7 rights. A statutory “supervisor” under the NLRA—meaning an employee who acts in the interest of an employer and whose position involves the exercise of independent judgment[1]—does not have the right to engage in concerted action. Without some theoretical impingement on Section 7 rights, the NLRB lacks any arguable basis to take action involving a statutory supervisor’s restrictive covenants.

But seasoned restrictive covenant litigators should understand this memo has the potential to create a lot of mischief in employee departure litigation. It will be critical to have counsel experienced in both restrictive covenant litigation and NLRB proceedings. Fortunately, Seyfarth fits the bill on both fronts.

[1] A statutory supervisor is “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” 29 U.S.C. § 152(11).

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The FTC is not alone in taking aim at non-competes. Yesterday, the NLRB’s General Counsel Jennifer Abruzzo issued a memo to all regional directors, officers-in-charge, and resident officers at the NLRB stating that non-competes in employment agreements and severance agreements violate the National Labor Relations Act except in rare circumstances. Specifically, Ms. Abruzzo claims that such covenants interfere with workers’ rights under Section 7 of the Act, which protects employees’ right to self-organize, join labor organizations, bargain collectively, and “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Thus, Ms. Abruzzo concluded, non-competes typically violate Section 8(a)(1) of the Act, which makes it an unfair labor practice for an employer to interfere with an employee’s Section 7 rights.

The Memo’s (Dubious) Reasoning

Ms. Abruzzo’s rationale for her determination is similar to the FTC’s: the memo claims (with scant support, we would add) that non-competes “are overbroad,” and can be construed by employees as “deny[ing] them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.” While some non-competes used by employers may be overbroad, Ms. Abruzzo treats it as a foregone conclusion that all non-competes are overbroad—notably without citing to any support for this statement. And this determination ignores state law, which typically requires that a non-compete be no broader than necessary to protect an employer’s legitimate business interests.

Ms. Abruzzo also infers—again, without support—that non-competes chill protected activity, because employees who perceive that they cannot seek new employment may be discouraged from threatening to resign en masse (although the memo concedes that there is not a recognized Section 7 right to “concertedly resign from employment”), concertedly seeking to join a competitor, and more. While primarily focused on non-competes, the memo potentially spells trouble for other restrictive covenants as well, including non-solicits; Ms. Abruzzo claims that agreements prohibiting employees from soliciting their former colleagues could run afoul of Section 7 rights, as well. And while the memo does not explicitly mention non-disclosure agreements, query whether the NLRB would scrutinize such agreements as potentially chilling employees’ desires to seek new employment, too (similar to the FTC’s proposed “de facto” test to determine whether an agreement includes a supposedly unlawful non-compete).

Ms. Abruzzo acknowledges that non-competes may be permissible, if they are “narrowly tailored to special circumstances justifying the infringement on employee rights,” which does not include a covenant whose only purpose is the employer’s “desire to avoid competition.” But again, this ignores that courts have agreed for centuries that competition is permitted—unfair competition is not. While Ms. Abruzzo points to low-wage and “middle-wage” employees with no access to trade secrets being bound by overbroad non-competes, she conspicuously avoids discussing the dozen states that have enacted wage thresholds for non-competes (see here, here, and here) and even non-solicits in some states, and the four state legislatures that have banned non-competes entirely (including most recently Minnesota).

As for the circumstances in which Ms. Abruzzo believes non-competes may be permissible? Like the FTC’s proposal, they are extremely limited. She only mentions restrictions on an individual’s “managerial or ownership interests” in a competing business, and “true independent-contractor relationships” (although she does concede that there may be other circumstances in which a narrowly tailored covenant is “justified by special circumstances,” but notably declines to give examples of such circumstances).

In the memo’s final paragraph, Ms. Abruzzo encourages NLRB employees to “seek make-whole relief” for employees who believe they have lost employment opportunities based on their employer’s non-compete, “even absent additional conduct by the employer to enforce the provision” (emphasis added).

Don’t Panic—But Do Be Prepared

While the foregoing sounds alarming, a few words of caution before abandoning the use of non-competes. Ms. Abruzzo’s interpretation of the Act is not binding or precedential. Instead, cases seeking “make-whole relief” as urged by the memo will first be brought by Regional Directors, who issue complaints of unfair labor practices, and are then decided by Administrative Law Judges. An ALJ decision comes with a recommended order which can then be appealed to the full NLRB in Washington, D.C. If no exceptions are filed to the ALJ’s decision, the judge’s order becomes the order of the NLRB. But an ALJ’s decision is not binding legal precedent in other cases unless it has been adopted by the NLRB on review of exceptions. Moreover, if adopted by the NLRB, the matter can then be appealed to the D.C. Court of Appeals or the Court of Appeals where the employer does business. In other words, it may be an uphill battle for the NLRB to successfully challenge and invalidate an employer’s use of non-competes.

And that is before you consider that—like the FTC—this is a new tactic without historical support. In the nearly 90 years since the NLRB was created and the Act became law, this is the first time that the agency has declared that non-competes violate the Act. In fact, prior NLRB cases have held that the conduct of employees acting in concert to become competitors or to undermine their employer’s relationship with other employees is not protected by the Act,[1] and employers who terminate employees for engaging in such conduct do not violate the Act.[2] In fact, the NLRB’s Division of Advice held in 2012 that a confidentiality and non-solicitation agreement (the latter of which, as noted above, is tackled in Ms. Abruzzo’s memo) did not violate the Act, and in making this determination, noted that the agreement did not explicitly restrict an employee’s Section 7 rights, was not adopted in response to Section 7 activity, and employees would not reasonably construe the agreement to interfere with Section 7 rights.[3] While conceivably there may be some non-competes implemented in order to interfere with Section 7 rights, the vast majority are not, and we suspect the NLRB will face challenges demonstrating such an alleged motive.

Where To Go From Here?

It remains to be seen if the NLRB will in fact bring cases to invalidate non-competes, and if so, whether it will see any success given past decisions. That said, as always, employers should take measures to ensure that their agreements are narrowly tailored, compliant with relevant law, and only applied to employees that pose a legitimate competitive threat. In that vein, employers should consider the risk in even asking non-exempt, low-wage, or mid-wage employees to execute agreements containing non-competes. Even if employers have no intent of enforcing non-competes against such employees, various state laws already prohibit merely entering into or maintaining non-competes with such employees, and some allow employees to recoup their attorneys’ fees from employers in declaratory judgment suits seeking to invalidate such covenants. Various enforcement agencies appear poised to target the use of such agreements as well, even without employers’ attempts to enforce them through litigation.

We encourage you to reach out to Seyfarth’s Trade Secrets, Computer Fraud, & Non-Competes team to review and update your agreements and provide tips on implementing them with your workforce.

[1] See, e.g., National Express Corp., d/b/a ATC/Forsythe & Assocs., Inc., 341 NLRB 501 (2004); Clinton Corn Processing Co., 194 NLRB 184 (1971).

[2] See, e.g., Kenai Helicopters, 235 NLRB 931 (1978); Associated Advertising Specialists, Inc., 232 NLRB 50 (1977).

[3] Charles Schwab Corp., 28-CA-084931 (Sept. 14, 2012) (Adv. Mem.).

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Minnesota is joining the growing list of state legislatures targeting non-compete agreements, and doing so with one of the most aggressive laws in the nation on the subject. Included as part of the Senate Jobs and Economic Development and Labor Omnibus Budget Bill (S.F. 3035), the newly-enacted Minn. Stat. Section 181.988 (“Section 181.988”) categorically bans non-compete agreements with Minnesota workers subject to a few narrow exceptions. Section 181.988 also takes the approach adopted by Colorado and Washington in prohibiting out-of-state choice of law and forum provisions in employment agreements containing non-compete provisions. The omnibus bill passed the legislature on May 15, 2023, was signed by Governor Tim Walz on May 24, 2023, and will become effective on July 1, 2023. While Section 181.988’s ban on non-compete provisions is not retroactive, any company with employees or independent contractors in Minnesota has just over a month to ensure that their agreements comply with the sweeping provisions of the new law.

Nearly a dozen states have passed laws prohibiting non-compete agreements below certain income thresholds or subject to other limitations, but Section 181.988 has Minnesota join California, North Dakota, and Oklahoma as one of the few jurisdictions with an outright ban on non-compete restrictions. Section 181.988 applies to both employees and independent contractors, with just two narrow exceptions for non-competes in connection with the sale of a business, or in anticipation of dissolution of a business. Beyond those two narrow exceptions, the new law entirely prohibits any provision in an agreement by which an individual is restricted from “(1) work for another employer for a specified period of time; (2) work in a specified geographical area; or (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.” (emphasis added).

Beyond the ban on non-competes, Section 181.988 takes a similar approach to that used in Washington state by prohibiting out-of-state choice-of-forum and choice-of-law provisions in agreements with non-compete provisions. As of July 1st, employers may not require an individual who primarily lives and work in Minnesota, as a condition of employment, (1) to agree to adjudicate a claim arising in Minnesota anywhere outside of that state (whether through litigation or arbitration), or (2) to agree to a provision that would deprive the employee of the substantive protections of Minnesota law, again for any claim arising in Minnesota. While some outlets have reported that this prohibition on out-of-state choice-of-forum and choice-of-law provisions applies to all employment agreements, even those without non-compete provisions, that does not appear to be the case—earlier versions of the omnibus bill passed by the Minnesota house would have done just that, but the Minnesota legislature added language specifying that the requirements for Minnesota forum and law only apply to “claims arising under this section” in the final version of the bill. That being said, the language of the statute is less than clear on the matter, and some employees may argue that the Minnesota law and forum provisions apply to all employment agreements rather than just those with non-compete provisions.

The lone bright spots for affected employers may be that Section 181.988 specifically excludes confidentiality agreements, agreements for the protection of trade secrets, and non-solicit restrictions, and that it contains broad severability language that means other provisions of an employment contact remain enforceable. That being said, anyone with employees in Minnesota should take steps now to ensure that their agreements account for the new restrictive covenant landscape in Minnesota, particularly considering that Section 181.988 allows employees to seek injunctive relief voiding agreements that violate the new law, and potentially be awarded their attorneys’ fees in doing so.