SF 405

2nd Engrossment - 93rd Legislature (2023 - 2024) Posted on 06/20/2023 02:03pm

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 termination of the employment,
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 A covenant not to compete does not include a nondisclosure agreement, or agreement
designed to protect trade secrets or confidential information. A covenant not to compete
does not include a nonsolicitation agreement, or agreement restricting the ability to use
client or contact lists, or solicit customers of the employer.
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) Notwithstanding paragraph (a), a covenant not to compete is valid and enforceable
if:
new text end

new text begin (1) the covenant not to compete is agreed upon during the sale of a business. The person
selling the business and the partners, members, or shareholders, and the buyer of the business
may agree on a temporary and geographically restricted covenant not to compete that will
prohibit the seller of the business from carrying on a similar business within a reasonable
geographic area and for a reasonable length of time; or
new text end

new text begin (2) the covenant not to compete is agreed upon in anticipation of the dissolution of a
business. The partners, members, or shareholders, upon or in anticipation of a dissolution
of a partnership, limited liability company, or corporation may agree that all or any number
of the parties will not carry on a similar business within a reasonable geographic area where
the business has been transacted.
new text end

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