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SF3288 (Legislative Session 94 (2025-2026))

Additional circumstances provision under which a covenant not to compete is valid and enforceable

Related bill: HF1768

AI Generated Summary

Purpose of the Bill

The bill aims to outline specific conditions under which a covenant not to compete can be valid and enforceable in Minnesota. These covenants are generally contractual agreements that restrict employees from working with competitors or starting a similar business after they leave a company.

Main Provisions

  1. General Invalidity of Covenants:

    • The bill maintains that covenants not to compete are generally void and unenforceable unless certain conditions are met.

  2. Exceptions for Valid Enforcement:

    • High Compensation Employees:
      • Covenants can be applied to employees earning an annual compensation of $120,000 or more, whose roles involve:
      • Research and development
      • Creation, analysis, or modification of confidential, proprietary, or trade secret information.
      • Management responsibility over such tasks.
      • Alternatively, they apply to any employee earning $500,000 or more, irrespective of their job duties.

  • Sale of a Business:

    • Covenants can be enforced when agreed upon during the sale of a business. The agreement should restrict the seller from engaging in a similar business within a reasonable geographic area and timeframe.

  • Business Dissolution:

    • Upon or in anticipation of a business dissolution, partners or shareholders may agree on covenants restricting them from starting a similar business within a reasonable geographic area.
  1. Attorney Fees:
    • Courts may award reasonable attorney fees to employees enforcing their rights under this statute.

Significant Changes to Existing Law

  • The bill specifies salary thresholds and particular job responsibilities that permit covenants not to compete, providing clearer guidelines compared to previous statutes.
  • It allows covenants to be enforceable in the context of business sales and dissolutions, which were not as explicitly detailed before.

Relevant Terms

  • Covenant not to compete
  • Confidential information
  • Proprietary information
  • Trade secret
  • Business sale
  • Business dissolution
  • Geographic restriction
  • Attorney fees

Bill text versions

Actions

DateChamberWhereTypeNameCommittee Name
April 02, 2025SenateFloorActionIntroduction and first reading
April 02, 2025SenateFloorActionReferred toLabor

Citations

 
[
  {
    "analysis": {
      "added": [
        "Specifies additional criteria regarding salary and responsibilities for enforceable covenants."
      ],
      "removed": [
        ""
      ],
      "summary": "This bill adjusts the conditions under which a covenant not to compete is valid or enforceable under section 181.988, subdivision 2.",
      "modified": [
        "Clarifies the exceptions where covenants are valid, such as in business sales or dissolutions."
      ]
    },
    "citation": "181.988",
    "subdivision": "subdivision 2"
  }
]

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