Minnesota Bans Non-Competes, Part 2

Don't forget contracts of temporary workers and independent contractors (and employee handbooks)

As I reported in my last post, Minnesota has banned non-compete agreements prospectively, effective July 1, 2023. This means that agreements signed on or after that date must not contain provisions that prevent employees and independent contractor workers from:

(a) Working for another employer for a specific period of time.
(b) Working in a specific geographical area.
(c) Working for another employer in a similar capacity as the employee’s previous role.

My article suggested that non-dealing covenants may continue to be lawful. These are provisions simply prohibiting a salesperson from doing business with his or her former clients or contacts for a certain period after termination of employment. That worker is still free to work for a competing staffing firm, so presumably the non-dealing covenant does not run afoul of the new law. That is a satisfactory solution for internal salespeople (assuming I am correct - consult your own counsel for his or her opinion), but what about a staffing firm's temporary workforce, including independent contractors?

It is traditional for temporary worker employment and contractor agreements to contain language prohibiting the worker for a certain period of time from circumventing the staffing firm and going to work directly for the client. From the staffing firm's perspective, this is perfectly reasonable, because the firm invested its resources to create the platform and develop the client relationship that enabled the worker to obtain the job. And the restriction is quite narrow, only applying to a single client company. Nevertheless, the above-quoted language of the Minnesota statute would seem to clearly invalidate such a restriction.

The statute applies to individuals working as independent contractors ("1099's" in staffing parlance), as well as "W-2" employees on the payroll. An independent contractor is defined under the law as:

any individual whose employment is governed by a contract and whose compensation is not reported to the Internal Revenue Service on a W-2 form. For purposes of this section, independent contractor also includes any corporation, limited liability corporation, partnership, or other corporate entity when an employer requires an individual to form such an organization for purposes of entering into a contract for services as a condition of receiving compensation under an independent contractor agreement.

So for Minnesota staffing firms, as well as firms that may make occasional placements there, there are at least three categories of agreement that should be reviewed with counsel for possible modification before July: (1) Internal employees; (2) temporary w-2 workers; and (3) individual independent contractor workers. In addition, some employee handbooks and policy manuals contain restrictive covenant terms, and these should be reviewed as well.

By: Bill Josey wjosey@staffinglaw.com