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HF 1237

as introduced - 93rd Legislature (2023 - 2024) Posted on 02/09/2023 09:04pm

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to employment; providing that covenants not to compete are void and
unenforceable; providing for the protection of substantive provisions of Minnesota
law to apply to matters arising in Minnesota; proposing coding for new law in
Minnesota Statutes, chapter 181.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [181.987] COVENANTS NOT TO COMPETE VOID IN EMPLOYMENT
AGREEMENTS; SUBSTANTIVE PROTECTIONS OF MINNESOTA LAW APPLY.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) "Covenant not to compete" means an agreement between
an employee and employer that restricts the employee, after the end of employment or
working relationship, from performing:
new text end

new text begin (1) work for another employer for a specified period of time;
new text end

new text begin (2) work in a specified geographical area; or
new text end

new text begin (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.
new text end

new text begin (b) "Employer" means any individual, partnership, association, corporation, business
trust, or any person or group of persons acting directly or indirectly in the interest of an
employer in relation to an employee.
new text end

new text begin (c) "Employee" as used in this section means any individual who performs services for
an employer, including independent contractors.
new text end

new text begin (d) "Independent contractor" means any individual whose employment is governed by
a contract and whose compensation is not reported to the Internal Revenue Service on a
W-2 form. For purposes of this section, independent contractor also includes any corporation,
limited liability corporation, partnership, or other corporate entity when an employer requires
an individual to form such an organization for purposes of entering into a contract for
services as a condition of receiving compensation under an independent contractor agreement.
new text end

new text begin Subd. 2. new text end

new text begin Covenants not to compete void and unenforceable. new text end

new text begin (a) Any covenant not to
compete contained in a contract or agreement is void and unenforceable.
new text end

new text begin (b) Nothing in this subdivision shall be construed to render void or unenforceable any
other provisions in a contract or agreement containing a void or unenforceable covenant
not to compete.
new text end

new text begin (c) In addition to injunctive relief and any other remedies available, a court shall award
an employee who is enforcing rights under this section reasonable attorney fees. Enforcing
rights under this section shall include defending against any action by an employer seeking
to enforce a contract provision that is found to be void and unenforceable under this section.
new text end

new text begin Subd. 3. new text end

new text begin Choice of law; venue. new text end

new text begin (a) An employer must not require an employee who
primarily resides and works in Minnesota, as a condition of employment, to agree to a
provision in an agreement or contract that would do either of the following:
new text end

new text begin (1) require the employee to adjudicate outside of Minnesota a claim arising in Minnesota;
or
new text end

new text begin (2) deprive the employee of the substantive protection of Minnesota law with respect to
a controversy arising in Minnesota.
new text end

new text begin (b) Any provision of a contract or agreement that violates paragraph (a) is voidable at
any time by the employee and if a provision is rendered void at the request of the employee,
the matter shall be adjudicated in Minnesota and Minnesota law shall govern the dispute.
new text end

new text begin (c) In addition to injunctive relief and all other remedies available at law, a court shall
award an employee who is enforcing rights under this section reasonable attorney fees.
new text end

new text begin (d) For purposes of this section, adjudication includes litigation and arbitration.
new text end

new text begin (e) This subdivision shall not apply to a contract with an employee who is in fact
individually represented by legal counsel in negotiating the terms of an agreement to
designate either the venue or forum in which a controversy arising from the employment
contract may be adjudicated or the choice of law to be applied.
new text end

new text begin Subd. 4. new text end

new text begin Severability. new text end

new text begin If any provision of this section is found to be unconstitutional
and void, the remaining provisions of this section are valid.
new text end

new text begin Subd. 5. new text end

new text begin Retroactive application. new text end

new text begin The legislature finds that workforce mobility is critical
to economic development and growth and the fair and just treatment of workers in all
industries within the state. There is a significant and legitimate need to encourage workforce
mobility and freedom of workers by preventing the enforcement of covenants not to compete.
The legislature therefore exercises its police power to regulate the use and enforceability
of such covenants in the interest of achieving this important public purpose. Accordingly,
this section applies to all proceedings commenced on or after the effective date, regardless
of when the cause of action arose. To this extent, this section applies retroactively, but in
all other respects it applies prospectively.
new text end

new text begin Subd. 6. new text end

new text begin Notice and opportunity to cure. new text end

new text begin (a) Within 180 days of the effective date for
this section, an employer may attempt to cure any agreement made void and unenforceable
by this section. This shall be known as the grace period.
new text end

new text begin (b) During the grace period, employers may provide notice to employees that a previous
agreement is now void and unenforceable. The notice must clearly state, in writing, that the
previously signed covenant not to compete is void, and inform the employee that they are
not bound by it and will not be subject to any enforcement actions if they violate it. Such
notice, provided during the grace period, shall serve as a full and complete defense against
liability in any declaratory action by an employee.
new text end

new text begin (c) During the grace period, an employer may seek to renegotiate a previously executed
covenant not to compete to conform with this section. During the grace period, evidence of
an employer's good faith effort to renegotiate a covenant not to compete may serve as a
defense against liability in any declaratory action by an employee.
new text end

new text begin (d) During the grace period, an employer may not enforce any agreement made void by
this section.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment and
applies to contracts and agreements entered into on or after that date.
new text end