Minnesota Non Compete Law Voids Most Employee Agreements

Minnesota replaced a case-by-case reasonableness inquiry with a flat prohibition. This article covers what the statute voids, the two exceptions, how agreements signed before the ban are treated, which restrictive clauses survive untouched, and the separate rule limiting out-of-state choice-of-law and forum terms. It sits alongside the other topics in the Minnesota employment law reference.

What the statute makes void

The operative sentence is short. Under Minn. Stat. § 181.988, subd. 2(a), “ny covenant not to compete contained in a contract or agreement is void and unenforceable.” No reasonableness inquiry follows. A narrow geographic radius does not save the clause, and neither does a short duration. Subdivision 1 defines the covered restriction broadly. A covenant not to compete is an agreement between an employee and employer restricting the employee, after termination of the employment, from performing work for another employer for a specified period of time, work in a specified geographical area, or work for another employer in a capacity similar to the employee’s work for the employer that is party to the agreement. A clause that fits any one of those three descriptions is void. The definition of “employee” is wider than the payroll. [statute url="https://www.revisor.mn.gov/statutes/cite/181.988"]Section 181.988, subd. 1(c)[/statute] covers “any individual who performs services for an employer, including independent contractors,” and paragraph (d) defines an independent contractor as an individual whose compensation is not reported to the Internal Revenue Service on a W-2 form. The same paragraph reaches the arrangement where an employer requires a worker to form a corporation, LLC, or partnership as a condition of receiving compensation under a contractor agreement. Restructuring a worker as a vendor does not move the relationship outside the statute. [important type="warning"] Voiding the covenant does not void the contract around it. Subdivision 2(c) provides that nothing in the subdivision renders void or unenforceable any other provision in a contract or agreement that contains a void covenant not to compete. Wage terms, confidentiality terms, and arbitration terms in the same document stand or fall on their own. [/important] ## The two covenants that survive The prohibition has two carve-outs, both tied to business ownership rather than employment. The first is the sale of a business. Under [statute url="https://www.revisor.mn.gov/statutes/cite/181.988"]Minn. Stat. § 181.988, subd. 2(b)(1)[/statute], the person selling the business, along with the partners, members, or shareholders, and the buyer may agree on a “temporary and geographically restricted” covenant prohibiting the seller from carrying on a similar business within a reasonable geographic area and for a reasonable length of time. The second is dissolution. Subdivision 2(b)(2) allows partners, members, or shareholders, upon or in anticipation of the dissolution of a partnership, limited liability company, or corporation, to agree that some or all of them will not carry on a similar business within a reasonable geographic area where the business has been transacted. Both exceptions carry the word “reasonable,” which is the older standard the legislature removed from the employment context. Neither exception turns on job title. An employee who holds equity is still an employee for purposes of the ban; the exceptions apply to the transaction documents in a sale or a wind-down, not to the employment agreement that sits beside them. ## Non-competes signed before the ban The prohibition was added by 2023 Minn. Laws ch. 53, art. 6, § 1 and applies to covenants entered into on or after July 1, 2023. The codified section contains no language reviving or invalidating agreements signed earlier. Covenants predating that date are governed by the case law that preceded the statute, under which enforceability was decided agreement by agreement. That older analysis is fact-bound, so two employees at the same company with differently worded agreements from different years can be in different positions. Signing date, not termination date, is what the applicability rule turns on. An employee who signed in 2021 and left in 2026 is outside the statutory ban even though the departure happened years after the law changed. An employee who signed a new agreement, or a materially revised one, after the effective date is inside it. ## Restrictions the ban does not reach Section 181.988 targets restrictions on where a person may work. It does not speak to what a person may take or use, and several common clauses fall outside its definition. Confidentiality and nondisclosure terms are untouched. So is Minnesota’s trade secret law: [statute url="https://www.revisor.mn.gov/statutes/cite/325C.01"]Minn. Stat. § 325C.01, subd. 5[/statute] defines a trade secret as information that derives independent economic value from not being generally known and that “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” A former employer can pursue misappropriation of that information regardless of the non-compete’s status. A separate section reaches one adjacent practice. [statute url="https://www.revisor.mn.gov/statutes/cite/181.9881"]Minn. Stat. § 181.9881[/statute] provides that no service provider may restrict, restrain, or prohibit a customer from directly or indirectly soliciting or hiring an employee of the service provider, and any provision of an existing contract that violates the rule is void and unenforceable. It applies to staffing and contract-labor arrangements, and it obligates the service provider to notify affected employees when an existing contract contains such a term. Federal trade secret law also has a limit worth reading in this context. Under 18 U.S.C. § 1836(b)(3)(A)(i), a court granting an injunction in a Defend Trade Secrets Act case may not “prevent a person from entering into an employment relationship,” and conditions on employment must rest on evidence of threatened misappropriation rather than on the information the person knows. The same provision bars injunctions that “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” Other Minnesota employment rules operate independently of section 181.988 as well. Minnesota break laws and Minnesota FMLA leave rights apply during employment no matter what a worker signed on the first day. ## Out-of-state choice of law and forum clauses Employers with multistate operations sometimes route Minnesota workers into another state’s law and another state’s courts. Subdivision 3 addresses that directly. Under [statute url="https://www.revisor.mn.gov/statutes/cite/181.988"]Minn. Stat. § 181.988, subd. 3(a)[/statute], an employer must not require an employee who primarily resides and works in Minnesota, as a condition of employment, to agree to a provision that would require the employee to adjudicate a Minnesota-arising claim outside Minnesota, or that would deprive the employee of the substantive protection of Minnesota law for a controversy arising in Minnesota. The remedy is unusual: the provision is voidable at any time by the employee, and if the employee voids it, the matter is adjudicated in Minnesota under Minnesota law. Subdivision 3(d) states that “adjudication includes litigation and arbitration,” so an arbitration clause seated in another state is covered. Subdivision 3(e) limits the reach of the choice-of-law rule to claims arising under section 181.988 itself. [important type="note"] The choice-of-law protection is keyed to where the employee primarily resides and works, not to where the employer is headquartered or where the contract was signed. [/important] ## Attorney fees and where these disputes are heard Fee-shifting runs one direction. Subdivision 2(d) and subdivision 3(c) each provide that, in addition to injunctive relief and any other remedies available, a court may award reasonable attorney fees to an employee who is enforcing rights under the section. There is no matching provision for an employer that successfully defends a covenant. These questions usually surface in one of two postures: a former employer sues to enforce, or a worker asks a court to declare the covenant void. Trade secret claims are often filed in federal court, where the District of Minnesota publishes resources for self-represented litigants. [steps] [step title="Identify the date the covenant was signed"] The applicability rule turns on when the agreement was entered into. A covenant signed on or after July 1, 2023 falls under the statutory ban; one signed earlier is analyzed under the prior case law. Offer letters, amended agreements, and equity documents can each carry their own date. [/step] [step title="Read the clause against the statutory definition"] Compare the restriction to the three descriptions in subdivision 1: work for another employer for a set period, work in a set geographic area, or work in a similar capacity. A clause matching any of them is a covenant not to compete for purposes of the section. [/step] [step title="Separate the non-compete from the other terms"] Confidentiality, nondisclosure, invention-assignment, and arbitration provisions are analyzed on their own. Subdivision 2(c) keeps them alive even when the covenant beside them is void. [/step] [step title="Check for a sale or dissolution context"] Covenants signed as part of selling a business, or in anticipation of dissolving one, fall within the two exceptions and are measured for reasonable scope and duration rather than voided outright. [/step] [step title="Check the governing-law and forum terms"] For an employee who primarily resides and works in Minnesota, a clause sending a Minnesota-arising claim to another state’s law or another state’s forum, including an out-of-state arbitration seat, is voidable by the employee. [/step] [/steps] [faq] [q]Does a non-compete affect unemployment benefits in Minnesota?[/q] [a]Eligibility for unemployment insurance is decided under a separate set of rules that look at the reason the employment ended, not at what restrictive covenants the worker signed. The process is covered in filing for Minnesota unemployment benefits. A void non-compete neither creates nor defeats eligibility.

Are customer nonsolicitation clauses covered by the ban? The statutory definition in [statute url="https://www.revisor.mn.gov/statutes/cite/181.988"]Minn. Stat. § 181.988, subd. 1(a)[/statute] describes restrictions on performing work for another employer, by period, by geography, or by similar capacity. A clause restricting contact with customers rather than employment itself does not match that definition on its face, which is why nonsolicitation terms are analyzed separately from the ban.

What if an employer keeps a non-compete in its onboarding paperwork anyway? The statute makes the covenant void rather than penalizing its presence in a document. Voidness is a defense: the clause cannot be enforced against the employee, and a court asked to enforce it applies section 181.988. Subdivision 2(d) permits an award of reasonable attorney fees to an employee enforcing rights under the section.

Does the ban apply to someone who works remotely for a Minnesota company from another state? Two questions run in parallel. The prohibition in subdivision 2 speaks to covenants generally, while the choice-of-law protection in subdivision 3 is written for an employee “who primarily resides and works in Minnesota.” A worker living and working elsewhere does not meet that description, so which state’s law governs the covenant becomes the threshold issue.

Can an employer still sue a former employee who takes client files? Yes. Taking documents or confidential information raises trade secret and contract questions that the non-compete ban does not touch. [statute url="https://www.revisor.mn.gov/statutes/cite/325C.01"]Minn. Stat. § 325C.01[/statute] supplies the state definition of a trade secret, and the federal Defend Trade Secrets Act supplies a parallel civil action, subject to the limits on injunctions in 18 U.S.C. § 1836(b)(3)(A)(i). [/faq]