Minnesota non-compete law: how the 2023 ban works, what survives the prohibition, why pre-existing agreements are still enforceable, and what employees need to know about the new framework

Minnesota banned non-competes in 2023

On July 1, 2023, Minnesota became one of a small number of states to ban non-compete agreements for employees. Minnesota Statutes §181.988 provides that "an employer shall not require an employee to agree, as a condition of obtaining employment, maintaining employment, receiving any type of benefit or payment from the employer, or as a condition of a severance agreement, to a covenant not to compete."

The ban is categorical for post-July 2023 agreements. No income threshold, no industry exception, no exemption for senior executives. An employer cannot enter into a non-compete with an employee in Minnesota regardless of the employee's salary, title, access to confidential information, or the employer's business justification. The restriction simply doesn't exist as an available contractual tool for Minnesota employers.

Minnesota joins California, North Dakota, and Oklahoma as states that prohibit non-competes outright (with narrow exceptions). The ban followed years of legislative debate and was enacted over objections from business groups who argued that non-competes are necessary to protect trade secrets and client relationships. The legislature's conclusion was that other legal tools — non-disclosure agreements, non-solicitation agreements, and trade-secret litigation — provide adequate protection without restricting employees' ability to change jobs.

What the ban covers

The statute's definition of "covenant not to compete" is broad: "an agreement between an employee and employer that restricts the employee, after termination of the employment, from performing work for another employer for a specified period of time, in a specified geographical area, or in a specified capacity." This covers traditional non-compete clauses, however labeled — covenant not to compete, restrictive covenant, competitive restriction, or any other designation.

The ban reaches agreements embedded in employment contracts, standalone non-compete documents, provisions in equity award agreements, and non-compete clauses in severance agreements. The statutory language specifically addresses severance: non-competes cannot be imposed "as a condition of a severance agreement," which means an employer cannot include a non-compete in a severance package and condition the severance benefits on the employee's acceptance.

The ban covers both full-time and part-time employees. It covers employees at every level — entry-level workers, mid-career professionals, senior executives, and C-suite officers. There is no carve-out based on the employee's role, compensation, or access to sensitive information.

What survives the ban

The ban is broad but not total. Several categories of agreements are explicitly excluded from the prohibition and remain enforceable in Minnesota.

Non-disclosure agreements. Agreements that restrict the disclosure or use of confidential information, trade secrets, or proprietary business information are not non-competes under the statute and are unaffected by the ban. An employer can still require employees to sign NDAs, and those agreements are enforceable under the Minnesota Uniform Trade Secrets Act (Minn. Stat. ch. 325C) and general contract law.

This is the most significant surviving restriction. A well-drafted NDA can prevent a departing employee from using or disclosing specific confidential information at a new employer. It cannot prevent the employee from working for the new employer, but it can restrict what the employee does with the former employer's proprietary information. In practice, a strong NDA achieves much of what a non-compete would achieve for employers whose primary concern is trade-secret protection rather than competition generally.

Non-solicitation agreements. Agreements that restrict an employee from soliciting the former employer's customers or recruiting the former employer's employees are not banned by §181.988. These agreements are narrower than non-competes — they restrict who you contact, not where you work — and are governed by separate common-law enforceability standards in Minnesota.

Non-solicitation agreements are subject to a reasonableness analysis similar to the pre-ban non-compete framework: they must protect a legitimate business interest, be reasonable in scope, and not impose undue hardship. But they are available as a contractual tool, and many Minnesota employers have shifted from non-competes to non-solicitation agreements as a substitute.

Sale-of-business agreements. Non-competes that are ancillary to the sale or dissolution of a business are expressly excluded from the ban. A seller who sells the goodwill of a business can agree not to compete with the buyer for a specified period and within a specified area. This exception is consistent with the approach in every state, including California, which maintains sale-of-business exceptions despite its categorical employment non-compete ban.

Agreements during employment. The ban applies to restrictions that take effect "after termination of the employment." An agreement that restricts competitive activity during employment — for example, a moonlighting restriction that prevents an employee from simultaneously working for a competitor — is not a post-employment non-compete and is not affected by the ban.

The transition: pre-July 2023 agreements

The ban applies to agreements entered into on or after July 1, 2023. Non-compete agreements signed before that date are not retroactively voided and remain enforceable under the prior common-law framework.

This transition creates a dual system. Minnesota employees who signed non-competes before July 1, 2023 are still bound by those agreements (if they satisfy the pre-ban reasonableness standards), while employees who signed after that date are categorically free from non-competes.

The pre-ban framework was a conventional reasonableness test. Minnesota courts evaluated non-competes under the standard articulated in Bennett v. Storz Broadcasting Co. (1956) and subsequent decisions: the restriction must protect a legitimate employer interest, be reasonable in scope, and not impose undue hardship. Minnesota courts historically applied this standard with moderate strictness, generally upholding one-to-two-year restrictions that were geographically and functionally tailored to the employee's role.

The practical significance of the transition diminishes over time. As pre-ban agreements expire (most have one-to-two-year durations) and employees with pre-ban agreements change jobs or renegotiate their employment terms, the number of enforceable pre-ban agreements will decline. By 2025-2026, the majority of active non-competes in Minnesota are expired or soon-to-expire pre-ban agreements.

Employers cannot evade the ban by maintaining a pre-ban agreement indefinitely. If an employer renews, amends, or extends an existing employment agreement after July 1, 2023, the non-compete provision in the renewed or amended agreement is subject to the ban and is void. The pre-ban exception protects only agreements that remain in their original, pre-July-2023 form.

Choice of law and the out-of-state question

One of the most important practical questions under Minnesota's ban is whether an out-of-state employer can enforce a non-compete against a Minnesota-based employee by designating another state's law.

Section 181.988(d) provides that "an agreement governed by this section that is entered into between an employee who primarily resides and works in Minnesota shall be governed by Minnesota law" regardless of any choice-of-law provision in the agreement. This follows the approach pioneered by California (SB 699) and adopted by Washington, Colorado, and other employee-protective states.

An employer based in Florida or Texas who hires a Minnesota-based employee cannot circumvent the ban by designating Florida or Texas law. If the employee primarily resides and works in Minnesota, Minnesota law governs, and the non-compete is void.

The "primarily resides and works in Minnesota" standard creates questions for employees who split their time between Minnesota and other states, or who work remotely from Minnesota for an employer in another state. The statute's use of "primarily" suggests a majority test — if more than half of the employee's work is performed in Minnesota, the ban applies. Employees who live in Minnesota but commute to a neighboring state for work, or who travel extensively for an out-of-state employer, may face closer analysis.

The employer's remaining toolkit

With non-competes unavailable, Minnesota employers have shifted their protective strategies to the tools that survive the ban.

Strong NDA programs. The most direct substitute for non-competes is a well-drafted NDA that identifies specific confidential information the employee accesses and restricts its use and disclosure after employment. An NDA doesn't prevent the employee from working for a competitor, but it prevents the employee from using the former employer's proprietary information at the competitor. For employers whose primary concern is trade secrets rather than competition generally, an NDA may provide equivalent protection.

Customer non-solicitation agreements. For employers whose primary concern is client relationships, a customer non-solicitation agreement prevents the departing employee from contacting and soliciting specific clients. The agreement must be reasonable in scope and duration, but it's available as a contractual tool and addresses the specific risk of customer defection.

Employee non-recruitment agreements. Agreements that restrict a departing employee from recruiting their former colleagues protect the employer's investment in its workforce and are available in Minnesota.

Trade secret litigation. The Minnesota Uniform Trade Secrets Act provides a cause of action for misappropriation of trade secrets, including injunctive relief. An employer who believes a former employee has taken or is using trade secrets can seek a court order prohibiting the use of the specific information, without needing a non-compete as the basis for relief.

Garden leave and paid non-compete substitutes. Some employers have structured separation agreements to include garden leave provisions — paying the employee for a period after departure during which the employee agrees not to take a competing position. Whether such arrangements constitute "covenants not to compete" under the ban is an open question. An agreement that pays the employee to refrain from competition may be functionally identical to a non-compete, but the voluntary, compensated nature of the arrangement creates arguments that it's a negotiated term rather than an imposed restriction.

Enforcement and remedies

The statute provides that a covenant not to compete that violates §181.988 "shall be void and unenforceable." An employer who attempts to enforce a void non-compete in court will lose on a motion to dismiss or summary judgment, and the employee may be awarded attorney fees.

The statute does not create a separate civil cause of action with statutory damages comparable to Washington's $5,000 minimum or Colorado's criminal penalties. The remedy is primarily defensive — the non-compete is void, and the employee can raise the ban as a complete defense to any enforcement action.

However, an employer who threatens to enforce a void non-compete — by sending a cease-and-desist letter, contacting the employee's new employer, or taking other actions designed to enforce a void restriction — may face claims for tortious interference, abuse of process, or violations of Minnesota's general unfair business practices standards, depending on the specific circumstances.

What Minnesota employees should know

If your non-compete was signed on or after July 1, 2023, it is void and unenforceable. You are not bound by it. Your employer cannot enforce it in court, and any attempt to do so will fail.

If your non-compete was signed before July 1, 2023, it may still be enforceable under the pre-ban framework. Evaluate it under the reasonableness standards that applied before the ban: is there a legitimate business interest, is the restriction reasonable in scope, and has the restriction period expired.

Non-solicitation and non-disclosure agreements are not affected by the ban and may still bind you. Evaluate those agreements separately — the ban eliminates non-competes, not all restrictive covenants.

If your employer is threatening to enforce a post-ban non-compete, the agreement is void as a matter of law. If the threat is deterring you from changing jobs, recognize that the legal analysis is clear and the employer's position is untenable. If the employer follows through on the threat by filing suit, the case should be resolved quickly on a motion to dismiss.

If you work in Minnesota for an out-of-state employer, the ban applies to you regardless of what state's law the agreement designates. You are protected by Minnesota law if you primarily reside and work in Minnesota.

The national overview positions Minnesota with California, North Dakota, and Oklahoma as a ban state — the strongest category of employee protection, where non-competes are not merely restricted but categorically prohibited for all workers regardless of income, position, or access to confidential information.