SAINT PAUL, Minn. – Today, the House Labor, Industry, Veterans and Military Affairs Committee approved legislation authored by Rep. Jen Schultz (DFL – Duluth) to limit non-compete employment agreements. The agreements restrict an employee’s ability to work when they leave an employer, with limits based on time periods, geography, and scope of work. These agreements often harm low- and middle-income workers, resulting in lower wages, less worker mobility, and less innovation and entrepreneurship.
“When we traditionally think about non-compete agreements in the workplace, we often think of executives and other high-ranking corporate officials. There’s no meaningful reason why someone who makes sandwiches, repairs cars, styles hair, or works in an Amazon warehouse should be subject to a strict, onerous non-compete agreement,” Rep. Schultz said. “The widespread, increasing enforcement of non-competes only tilts the tables steeper against workers. Given the tight labor market, we need flexibility for job mobility so we can take full advantage of all the talent we have in our state. There’s momentum nationwide toward banning non-competes, and I hope Minnesota can be next to limit this practice that harms workers.”
Employers have enforced non-compete agreements with increasing frequency, including fast food, retail, and warehouse workers, all instances when the purpose of the agreements is questionably legitimate. One in five workers in the United States works with a non-compete agreement, including 14% of those making less than $40,000 per year. The Economic Innovation Group found that wages are higher in states that limit the use of non-competes, or don’t allow them at all, than states with strict enforcement.
With narrow exceptions, Rep. Schultz’s legislation prohibits non-compete agreements by making such covenants void and unenforceable. All non-compete agreements would be banned unless the employee earns a salary at least the median income in Minnesota for a family of four. When enforcing a non-compete, the employer must provide “garden pay” to the former worker during the restriction period of at least 50% of their earnings during their last two years of service. The bill also bans “choice of venue” when seeking to enforce a non-compete agreement.
Attorney General Keith Ellison provided testimony in support of Rep. Schultz’s bill, while also encouraging the Federal Trade Commission to take action prohibiting non-competes nationwide. Emily Olson, an independent contractor and former executive in the salon and spa industry, shared her experience under a non-compete agreement. University of Maryland Professor of Economics Evan Starr, Ryan Nunn, Assistant Vice President for Applied Research at the Federal Reserve Bank of Minneapolis, Catherine Lyons, Director of Policy and Coalitions at the Economic Innovation Group, and Christopher Penwell, an attorney and mediator with Siegel Brill, P.A. also testified in favor of the legislation.
This bill doesn’t prohibit non-solicitation agreements, nondisclosure agreements, and trade secret protections in employment contracts.
The House Judiciary and Civil Law Committee will consider the legislation next. Video of the hearing will be available on House Public Information Services’ YouTube channel. Documents and other information from the hearing are available on the committee webpage.