Employee Non-Compete Agreement and Enforceability Memo — Minnesota

MINNESOTA Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

TO: [Hiring Manager / General Counsel / Client]
FROM: [Attorney Name], [Firm]
RE: Enforceability of Proposed Non-Compete Restriction Against [Employee Name] Under Minnesota Law
DATE: [__/__/____]

1. Executive Summary

Minnesota joined California, Oklahoma, and North Dakota as one of the few states with a near-total ban on post-employment non-competes when Minn. Stat. § 181.988 took effect on July 1, 2023. Unlike Colorado (which has an income-threshold exception) or Washington (which has an income threshold and notice requirements), Minnesota's ban is categorical: there is no employee earning threshold that revives a non-compete.

Only two narrow exceptions remain: (a) non-competes incident to the sale of a business and (b) non-competes in anticipation of dissolution of a partnership, LLC, or corporation. Both are limited to "reasonable" geographic scope and duration.

The statute, however, does not prohibit NDAs, trade-secret protections, non-solicitation agreements, or client/contact-list restrictions. Employers seeking to protect competitive interests in Minnesota should pivot to these alternatives.

2. The Categorical Ban (§ 181.988(2)(a))

Any "covenant not to compete contained in a contract or agreement is void and unenforceable." A "covenant not to compete" means any agreement restricting an employee, after termination, from:

(1) Working for another employer for a specified period of time;
(2) Working in a specified geographical area; or
(3) Working for another employer in a capacity similar to the employee's work for the prior employer.

The disjunctive "or" in subdivision 1 means that any single restriction along any of these three axes triggers the ban. There is no de minimis exception.

3. Statutory Carve-Outs (§ 181.988(1)(a)) — Tools That Remain Available

The statute expressly excludes from the definition of "covenant not to compete":

4. The Two Exceptions in Detail

Sale of Business (§ 181.988(2)(b)(1)). The seller (and partners/members/shareholders of the selling entity) may agree with the buyer to a temporary and geographically restricted non-compete that prohibits the seller from carrying on a similar business "within a reasonable geographic area and for a reasonable length of time." The statute does not specify maximums; common-law reasonableness applies.

Anticipated Dissolution (§ 181.988(2)(b)(2)). Partners, members, or shareholders may agree, upon or in anticipation of dissolution of a partnership, LLC, or corporation, that all or any number of them will not carry on a similar business "within a reasonable geographic area where the business has been transacted."

5. Choice of Law and Venue (§ 181.988(3))

An employer must not require an employee who primarily resides and works in Minnesota, as a condition of employment, to agree to:

(1) Adjudicate outside of Minnesota a claim arising in Minnesota; or
(2) Be deprived of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.

Any such provision is voidable by the employee, in which case the matter is adjudicated in Minnesota and Minnesota law governs. The protection applies only to "claims arising under this section," but the disabling effect on out-of-state choice-of-law clauses is broad.

6. Remedies and Fee-Shifting

• § 181.988(2)(d): In addition to injunctive relief and any other remedies, a court may award reasonable attorney fees to an employee enforcing rights under the section.
• § 181.988(3)(c): Same fee-shifting applies to enforcement of the choice-of-law / venue provision.
• One-way fee-shifting: No reciprocal fee award for the employer.
• Severability (§ 181.988(2)(c)): A void non-compete does NOT invalidate the rest of the agreement — other provisions (NDA, non-solicit, IP assignment) remain enforceable.

7. Grandfathering and Renewals

The ban is prospective only — non-competes entered before July 1, 2023 are not invalidated by the statute itself, although they remain subject to common-law reasonableness review (which Minnesota courts have applied skeptically for decades). Any renewal, extension, or amendment of an existing non-compete after July 1, 2023 is a new agreement subject to the ban.

8. Recommended Approach for This Engagement

☐ Do not include a post-employment non-compete — it is void per se.

☐ Pivot to Alternative Protections Package (Part B): NDA + trade-secret protection + non-solicitation (customers and employees) + client-list restriction + invention assignment.

☐ If sale-of-business transaction: Apply § 181.988(2)(b)(1) — confirm reasonable scope and duration; tie to specific goodwill purchased.

☐ If pre-July 1, 2023 agreement: Conduct common-law reasonableness review before attempting enforcement (legitimate interest, reasonable scope, no undue hardship, public interest); do not amend or renew without converting to alternative-protection model.

Part B — Cannot Be Enforced: Alternative Protections Package

WHY THIS SECTION REPLACES A STANDARD NON-COMPETE: Because Minn. Stat. § 181.988 voids all post-employment non-competes regardless of income, this template provides an Alternative Protections Package consisting of (1) a Confidentiality / NDA, (2) a Trade-Secret Protection Acknowledgment, (3) a Customer Non-Solicitation, (4) an Employee Non-Solicitation, (5) a Client/Contact-List Restriction, and (6) an Invention Assignment. Each component is expressly preserved by the § 181.988(1)(a) carve-outs. Use this package in lieu of any non-compete unless the transaction qualifies for the sale-of-business or dissolution exception.

B-1. Confidentiality and Non-Disclosure Agreement

1. Confidential Information. "Confidential Information" means any non-public, proprietary, or trade-secret information of [EMPLOYER NAME] ("Company"), including but not limited to: customer lists, pricing strategies, business plans, financial data, product development, marketing strategies, vendor terms, software, algorithms, technical data, and employee information. The definition is intended to be consistent with the Minnesota Uniform Trade Secrets Act, Minn. Stat. § 325C.01 et seq., and the Defend Trade Secrets Act, 18 U.S.C. § 1836.

2. Use Restrictions. Employee shall use Confidential Information only in the course of performing Employee's duties for the Company and shall not disclose Confidential Information to any third party without the Company's prior written consent.

3. DTSA Whistleblower Notice (18 U.S.C. § 1833(b)). An individual shall not be held criminally or civilly liable under any federal or state trade-secret law for the disclosure of a trade secret that (a) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

4. Carve-Outs. This Agreement does not prohibit Employee from (a) disclosing information that is publicly available through no fault of Employee; (b) using general skills, knowledge, or experience acquired before or during employment; (c) reporting suspected violations of law to government agencies; (d) participating in concerted activity protected by the NLRA; or (e) responding truthfully to a lawful subpoena.

5. Return of Materials. Upon termination, Employee shall return or destroy all Confidential Information in any medium.

6. Survival. This Section survives termination for so long as information remains confidential, proprietary, or a trade secret.

B-2. Trade-Secret Protection Acknowledgment

Employee acknowledges that Employee will have access to Company trade secrets, including (without limitation): [________________________________] [describe specific trade-secret categories]. Misappropriation of these trade secrets would cause irreparable harm, and the Company shall be entitled to injunctive relief, damages, exemplary damages, and reasonable attorney fees under Minn. Stat. § 325C.03 and § 325C.04, and under the DTSA, 18 U.S.C. §§ 1836–1839.

B-3. Customer Non-Solicitation

For a period of twelve (12) months following termination of employment, Employee shall not, directly or indirectly, solicit business from any "Customer" of the Company for the purpose of providing goods or services competitive with the Company's business.

"Customer" means a person or entity that (a) purchased goods or services from the Company during the twelve (12) months preceding Employee's termination, AND (b) with whom Employee had material business contact, or about whom Employee had access to Confidential Information, during that period.

DRAFTER'S NOTE: Non-solicitation agreements are NOT prohibited by § 181.988 but remain subject to common-law reasonableness. Keep the duration short (12 months is typical; 24 months is the outer edge), tie the customer definition to actual contact or information access, and prohibit only solicitation for competitive purposes (not solicitation generally). Be careful that the practical effect is not a de facto non-compete.

B-4. Employee Non-Solicitation ("No-Poach")

For a period of twelve (12) months following termination, Employee shall not, directly or indirectly, solicit, recruit, or hire any individual who was an employee of the Company during the six (6) months preceding Employee's termination, except through general solicitations (e.g., job postings) not specifically directed at Company employees.

B-5. Client/Contact-List Restriction

Employee shall not, during employment or thereafter, use, copy, retain, transmit, or rely upon any Company client list, customer database, contact list, or sales pipeline that constitutes Confidential Information of the Company, for any purpose other than performing duties for the Company.

B-6. Invention Assignment (subject to Minn. Stat. § 181.78)

Employee assigns to the Company all right, title, and interest in any inventions, discoveries, or works conceived or developed by Employee during employment that (a) relate to the Company's business, (b) are made using Company time or resources, or (c) result from work performed for the Company.

Statutory Carve-Out (Minn. Stat. § 181.78): This assignment does NOT apply to an invention for which no equipment, supplies, facility, or trade-secret information of the Company was used and which was developed entirely on the employee's own time, and (a) which does not relate (1) directly to the business of the employer or (2) to the employer's actual or demonstrably anticipated research or development, or (b) which does not result from any work performed by the employee for the employer.

B-7. Sale-of-Business Non-Compete (Optional — § 181.988(2)(b)(1))

CONDITIONAL — INCLUDE ONLY IF EMPLOYEE IS A SELLER OR EQUITYHOLDER IN A SALE-OF-BUSINESS TRANSACTION.

In connection with the sale of [DESCRIBE BUSINESS / ASSETS], Employee agrees that, for a period of [____] years following the closing date and within [GEOGRAPHIC AREA — tied to where the sold business has actually operated], Employee shall not, directly or indirectly, engage in any business that is the same as or substantially similar to the business sold. This covenant is entered pursuant to Minn. Stat. § 181.988(2)(b)(1) and is intended to be temporary, geographically reasonable, and tied to the goodwill purchased.

B-8. Remedies

Injunctive Relief. Employee acknowledges that a breach of Sections B-1 through B-6 would cause irreparable harm, and the Company shall be entitled to injunctive relief in addition to monetary damages.

Attorney Fees. Each party shall bear its own fees, except that (a) the prevailing party in an action arising under the Minnesota Uniform Trade Secrets Act or DTSA may recover fees as provided by statute; and (b) Employee may recover attorney fees under Minn. Stat. § 181.988(2)(d) or (3)(c) where applicable.

Choice of Law / Venue. This Agreement is governed by Minnesota law. For any employee primarily residing and working in Minnesota, any claim arising under Minn. Stat. § 181.988 shall be adjudicated exclusively in Minnesota.

Severability. If any provision is held unenforceable, the remaining provisions remain in full force. Per § 181.988(2)(c), the invalidity of any covenant not to compete does not invalidate other provisions of this Agreement.

Part C — Pre-Signing Checklist

Complete this checklist BEFORE the employee or contractor signs. Including a void non-compete exposes the Company to attorney-fee liability and undermines the credibility of the rest of the agreement.

Confirm No Prohibited Restriction

☐ Reviewed agreement for any provision restricting post-employment work for another employer for a specified period.
☐ Reviewed for any provision restricting work in a specified geographic area.
☐ Reviewed for any provision restricting work for another employer in a capacity similar to the prior role.
☐ Confirmed NONE of the above is present (or, if present, qualifies for sale-of-business or dissolution exception).

Permitted Restrictions

☐ NDA / confidentiality drafted with carve-outs (general skills, publicly available info, legally protected conduct, NLRA, whistleblower).
☐ Trade-secret protection acknowledgment ties to specific identified trade-secret categories.
☐ Customer non-solicit limited to (a) reasonable duration (12 months typical); (b) customers with whom employee had material contact; (c) solicitation for competitive purposes only.
☐ Employee non-solicit limited to direct/targeted recruitment; allows general job-posting solicitations.
☐ Client/contact-list restriction tied to identifiable lists.
☐ Invention assignment includes Minn. Stat. § 181.78 statutory carve-out.

Document Integrity

☐ Choice-of-law clause specifies Minnesota (or, if another state, employee is fully informed and primarily resides/works outside Minnesota).
☐ DTSA whistleblower notice (18 U.S.C. § 1833(b)) included.
☐ Severability clause confirms invalidity of any non-compete does not invalidate the remainder (mirrors § 181.988(2)(c)).
☐ No tolling, liquidated-damages, or forfeiture clause that effectively operates as a non-compete.

Sale-of-Business Transactions Only

☐ Confirmed transaction is a bona fide sale of business or sale of equity (not a disguised employment non-compete).
☐ Restraint is geographically tailored to where the sold business actually operated.
☐ Duration is reasonable in light of the goodwill purchased.
☐ Non-compete is included in the purchase agreement, not just the employment agreement.

Grandfathered (Pre-July 1, 2023) Agreements

☐ Confirmed execution date is before July 1, 2023.
☐ No renewal, extension, or amendment after July 1, 2023 (which would convert it to a new agreement subject to the ban).
☐ Conducted common-law reasonableness review before attempting enforcement.

Recordkeeping

☐ Original signed agreement retained.
☐ Documentation of execution date.
☐ Documentation that other-state choice-of-law clause was not used to evade Minnesota law for MN-based employees.

Sources and References

• Minn. Stat. § 181.988 — Office of the Revisor of Statutes — https://www.revisor.mn.gov/statutes/cite/181.988
• Minnesota Uniform Trade Secrets Act, Minn. Stat. § 325C.01 et seq. — https://www.revisor.mn.gov/statutes/cite/325C
• Minn. Stat. § 181.78 (Inventions not assigned) — https://www.revisor.mn.gov/statutes/cite/181.78
• S.F. 3035 (2023 session) — Jobs and Economic Development and Labor Omnibus Bill — https://www.revisor.mn.gov/bills/bill.php?b=Senate&f=SF3035&ssn=0&y=2023
• Defend Trade Secrets Act, 18 U.S.C. § 1836 — https://www.law.cornell.edu/uscode/text/18/1836
• DTSA Whistleblower Immunity, 18 U.S.C. § 1833(b) — https://www.law.cornell.edu/uscode/text/18/1833
• Husch Blackwell, "Governor Walz Signs into Law Non-Compete Ban in Minnesota" — https://www.huschblackwell.com/newsandinsights/governor-walz-signs-into-law-non-compete-ban-in-minnesota
• Seyfarth Shaw, "Gopher State Goes For Broke with Non-Compete Ban" — https://www.tradesecretslaw.com/2023/05/articles/state-non-compete-legislation-update/gopher-state-goes-for-broke-with-proposed-non-compete-ban/
• MNCPA Footnote, "Minnesota bans new employee covenants not to compete" — https://www.mncpa.org/publications/footnote/october-november-2023/not-to-compete/

This template is provided for informational purposes only and does not constitute legal advice. Minnesota's non-compete ban under Minn. Stat. § 181.988 is categorical: no income threshold, no notice fix, no judicial reformation will save a post-employment non-compete entered on or after July 1, 2023 (outside the two narrow exceptions). Do not rely on this template without review by a Minnesota-licensed employment attorney.

Prepared for use on ezel.ai — a legal template platform for solo and small-firm practitioners.