Coming on the heels of the Federal Trade Commission's proposed rule banning employee non-competes and one week before the National Labor Relations Board's General Counsel published a memo taking the position that non-competition agreements violate the National Labor Relations Act "[e]xcept in limited circumstances," on May 24, 2023, Minnesota's Governor signed into law Bill SF 3035 banning employee non-compete provisions.
Becoming the fourth state (joining California, Oklahoma, and North Dakota) to adopt a statute declaring employee non-competition agreements unenforceable, Minnesota, effective July 1, 2023, prohibits employers from entering into non-competition agreements with any individual who resides or works in Minnesota (though the law will continue to permit non-competition agreements entered into in connection with the sale of a business or in anticipation of the dissolution of a business).
The trend of states prohibiting employee non-competes appears poised to continue, with New York on the brink of passing into law a similar bill. On June 20, 2023, the New York State Legislature passed Bill No. S3100A, which if signed by Governor Kathy Hochul would prohibit – effective 30 days after signing – virtually all employee non-competition agreements. The New York bill as currently drafted is extremely broad, lacking even an express exception for non-competition agreements entered into in connection with the sale of a business. It also is punitive, permitting employees and contractors to sue an employer alleged to have violated the law and recover back pay, damages, attorneys' fees, as well as liquidated damages of up to $10,000.
If Governor Hochul signs the bill and New York becomes the fifth state to ban non-competes, it is quite possible that this trend may snowball, necessitating that many employers not only revamp their onboarding paperwork, but also review for potential enhancement the other means by which they protect their confidential information and goodwill.
WilmerHale continues to closely monitor developments in this area and will provide updates. In the meantime, employers are encouraged to reach out with questions and if they need assistance updating their current restrictive covenant agreements to ensure compliance with applicable state and federal laws.
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