In March, we notified you about a bill proposed in the Minnesota legislature, H.F. No. 506, to void and prohibit most noncompete agreements.  (See full text below.)  The bill has stalled at the Committee level and will not advance this session.

Reps. Joe Atkins (DFL- Inver Grove Heights) and Alice Hausman (DFL - St. Paul) introduced the proposed legislation.  The bill was referred to the Labor, Workforce and Regulated Industries Committee.  To remain viable for the 2013 session, the bill needed to be heard in the House committee by March 15, which did not occur.  Absent the committee hearing, and with no companion bill introduced in the Senate, the bill will not advance this session, but it does remain alive for consideration during the 2014 legislative session. (Click here to view the text and status of the bill.) 

We will continue to monitor this proposed legislation.  For questions on Minnesota noncompete law, contact Livia Babcock, Mary O'Brien, or Brad Lindeman.

Employers often require employees to enter into noncompete agreements that will protect the company's business interests----the investment of time and money in the employee, customer relationships, and trade secrets----if the employee leaves the company. Minnesota courts have routinely upheld agreements that restrict an employee from competing against a former employer or soliciting clients for a certain period of time following termination of their employment. A recent bill filed in the Minnesota legislature, however, aims to change that.

H.F. No. 506, entitled "Noncompete Agreements Void," would make any contract that prohibits a party from exercising a lawful profession in Minnesota void and unenforceable, except in three limited circumstances:

1. A seller of a business's goodwill can agree to refrain from carrying on a similar business in a specified geographic area if the buyer carries on business in that area;
    
2.  Partners dissolving a partnership can agree that they will not carry on a similar business in a specified geographic area where the partnership transacted business; and
    
3.  LLC members dissolving or terminating their interest can agree not to carry on a similar  business in a specified geographic area where the LLC or one of its members continues to operate.

The bill is authored by Representative Joe Atkins (DFL), a lawyer and Chair of the House Commerce Committee, and Representative Alice Hausmann (DFL), Chair of the Capital Investment Committee.

If this bill passes, it would represent a sea change in Minnesota law governing noncompete agreements. It will significantly impact an employer's ability to require and enforce noncompete agreements with Minnesota employees, and thereby impact a company's ability to protect its investment in its workforce, customer relationships, and trade secrets.

The language of the proposed bill is similar to North Dakota Code Section 9-08-06. North Dakota courts have interpreted their statute as rendering both noncompete and nonsolicitation agreements void and unenforceable. The proposed Minnesota legislation is silent on whether agreements prohibiting an employee from soliciting customers would also be void. We expect Minnesota and other companies with Minnesota employees will not remain silent about this proposed legislation.