Minnesota Authorizes Customers to Poach Employees of Vendors

Broad language may even bar conversion fees

Last year I wrote about Minnesota's ban on non-compete agreements, and methods that may remain available to employers to protect their businesses from unfair competition. Now the Land of 10,000 Waters is back at it again, this time with a vengeance. The Minnesota Legislature has just outlawed contract terms that prevent your customers from poaching your employees, effective July 1, 2024. For decades, agreements of this type have been considered benign and reasonable - but no longer in Minnesota. The law, passed under the guise of enhancing "workforce mobility," is clearly a poke at the staffing industry, following the lead of states like New Jersey and Illinois that recently passed anti-staffing laws.

The statute reads in pertinent part:

(a) No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider. (b) Any provision of an existing contract that violates paragraph (a) is void and unenforceable.

The definition of "employee" includes independent contractors.

Staffing firms are of course in the very business of locating and providing labor for a fee. A big question for staffing firms is whether charging the customer a "conversion fee" for hiring a temporary worker is a violation of this law. The concern here starts with the broad terminology "restrict, restrain, or prohibit in any way." Is a conversion fee charged to a staffing customer (effectively a delayed placement fee) a covered "restriction" or "restraint" on "hiring an employee of a service provider?"

The question can be argued both ways. The staffing side will argue that a conversion fee is a commercial arrangement between a willing seller and buyer. Is it a restraint on your right to get a car wash if the facility charges you for it? Hardly. The other side will focus on the words "in any way" and argue that these words indicate that the legislature meant to include indirect burdens, such as conversion fees, in the ban. It is questions like this that keep lawyers and courts in business.

There is an exception in the statue that may come into play in connection with the argument. In a bone tossed to tech staffing, the law contains a sentence that exempts tech worker conversions from the ban:

This section does not apply to workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date.

Apparently, someone persuaded the legislature that in the context of technical staffing a temp-to-perm arrangement was worthy of an express exemption. For the rest of the staffing industry, this is troublesome, because it leads to the argument that the failure to exempt all temp-to-perm agreements means that the legislature must have intended to include them in the ban.

In any event, on or before July 1, Minnesota staffing firms (and any other companies with similar customer restrictions) need to consider revising their customer agreements. On the other hand, the law only voids offending contracts - it does not expressly require them to be re-written, like some laws banning non-competes do. What are the odds of a client declining to hire a temporary worker because of a null and void non-solicitation clause that leads to an employee lawsuit against your firm? As for a contract with conversion fees, if the client pays the fee (and they might want to in order to secure a reliable labor source), is this "no harm-no foul" situation? The only recommendation I can safely give at this point is to contact your own attorney and talk it over. But the answer is likely to remain unclear until a definitive case reaches the Minnesota Supreme Court years from now.