Once a Minnesota business owner learns that employee non-competes are void, the next question is always the same, and it’s the right one: then what do I have?
More than you think, and less than you’ve actually put in place. Minnesota didn’t deregulate employee mobility. It swapped a covenant for a set of practices. A covenant takes a signature. Practices take work.
Here’s the program: what a Minnesota employer can still do, in the order you should build it, with the statute behind each layer.
What the ban took away
Minn. Stat. § 181.988, subd. 2(a): “Any covenant not to compete contained in a contract or agreement is void and unenforceable.” Subdivision 1(a) defines the covenant as an agreement between employee and employer that restricts the employee, “after termination of the employment,” from performing “work for another employer for a specified period of time,” “work in a specified geographical area,” or “work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.”
It only looks forward. The session law says so outright: “EFFECTIVE DATE. This section is effective July 1, 2023, and applies to contracts and agreements entered into on or after that date.” 2023 Minn. Laws ch. 53, art. 6, § 1.
And “employee” is broad. Subdivision 1(c) reaches “any individual who performs services for an employer, including independent contractors,” and subdivision 1(d) extends “independent contractor” to “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.”
Now read the two sentences that close out subdivision 1(a). Everything below is built on them:
A covenant not to compete does not include a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information. A covenant not to compete does not include a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.
The Legislature didn’t leave employers guessing about what survived. It wrote the answer into the definition.
Minnesota does this often enough that it’s a pattern: it declares a category of promise unenforceable and leaves the interest underneath it alone. We traced that pattern across the statutes here.
Layer 1: trade secret protection, and it doesn’t need a signature
Minnesota’s Uniform Trade Secrets Act, Minn. Stat. ch. 325C, came through the 2023 act untouched, and it doesn’t depend on an agreement. A departing employee who takes protected information is exposed whether or not anybody ever signed anything.
The requirement that matters is in the definition. Minn. Stat. § 325C.01, subd. 5, defines a trade secret as information that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Element (ii) isn’t a legal argument. It’s an operations project, and it has to be done before the dispute starts. “Efforts that are reasonable under the circumstances” is a fact question, decided on what the company actually did — access controls, marking, written policy, exit procedures, vendor NDAs — in the ordinary course, not in the two weeks after somebody resigns.
The same subdivision gives you a helpful counterweight. A trade secret’s existence “is not negated merely because an employee or other person has acquired the trade secret without express or specific notice that it is a trade secret if, under all the circumstances, the employee or other person knows or has reason to know that the owner intends or expects the secrecy of the type of information comprising the trade secret to be maintained.”
And you don’t have to wait for the harm. Section 325C.02(a): “Actual or threatened misappropriation may be enjoined.” Paragraph (c) adds that “[i]n appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.”
The exposure also runs to the company doing the hiring. Section 325C.01, subd. 3, defines misappropriation to include acquisition “by a person who knows or has reason to know that the trade secret was acquired by improper means,” and disclosure or use by a person who “knew or had reason to know” the knowledge came from a person under a duty to maintain secrecy. A competitor that hires your engineer and lets her bring files has its own problem.
The federal Defend Trade Secrets Act, 18 U.S.C. § 1836, applies on its own and gives you a federal forum without diversity.
Layer 2: the confidentiality agreement, and the federal notice most of them are missing
Confidentiality agreements sit expressly outside the non-compete definition. § 181.988, subd. 1(a). They’re also the cheapest evidence of the “reasonable efforts” element in § 325C.01, subd. 5.
But an employer that drafts one and leaves out the DTSA immunity notice has given away part of its own remedy. 18 U.S.C. § 1833(b)(3)(A):
An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.
The immunity behind that notice is real, and it’s worth knowing. Section 1833(b)(1) provides that 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” 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 made in a sealed court filing. Subsection (b)(2) lets an individual suing for retaliation disclose the trade secret to counsel and use it in the proceeding, under seal.
A confidentiality agreement that says it prohibits that disclosure isn’t enforceable against it. Employers should read § 1833(b) alongside Minnesota’s Whistleblower Act. A confidentiality clause isn’t a tool for punishing a protected report, and using it as one turns a defensible position into a retaliation claim.
The practical points on the notice:
- You can comply by cross-reference. § 1833(b)(3)(B): the employer is compliant “if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.”
- The penalty is targeted. § 1833(b)(3)(C): a non-compliant employer “may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided.” Compensatory damages and injunctive relief aren’t touched, and neither is any claim against a non-employee defendant.
- It applies going forward. § 1833(b)(3)(D): the paragraph “shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.” Enactment was May 11, 2016 (Pub. L. 114-153).
- “Employee” includes contractors. § 1833(b)(4): the term “includes any individual performing work as a contractor or consultant for an employer.”
“Updated after” is the phrase to act on. Next time you revise the template, the notice goes in.
Layer 3: nonsolicitation is carved out, but read § 181.9881 first
Nonsolicitation agreements are outside the § 181.988 definition too, under the second sentence of subdivision 1(a). Whether a particular nonsolicitation clause is enforceable against a particular employee is still a separate, fact-specific question, and § 181.988 doesn’t answer it.
But a 2024 statute voids an entire category of restriction, and service businesses keep signing the void version. Minn. Stat. § 181.9881, subd. 2:
(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.
(c) When a provision in an existing contract violates this section, the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section.
Who it reaches. A “service provider” is “any partnership, association, corporation, business, trust, or group of persons acting directly or indirectly as an employer or manager for work contracted or requested by a customer.” § 181.9881, subd. 1(c). That’s a staffing agency, a managed services provider, a contract-labor firm, an outsourced facilities or IT company — anyone whose people work at a client site under a master services agreement.
Subdivision 3 has one narrow exemption: the section doesn’t 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.”
It’s prospective too. “EFFECTIVE DATE. This section is effective July 1, 2024, and applies to contracts and agreements entered into on or after that date.” 2024 Minn. Laws ch. 110, art. 2, § 12.
Look at the affirmative duty in paragraph (c). A service provider whose existing contract has an offending covenant must notify its own employees of the statute and of the covenant. That’s a compliance step, not a litigation risk. And nobody does it.
Layer 4: the covenant that survived
Minn. Stat. § 181.988, subd. 2(b) keeps two covenants alive, and both run against owners, not employees:
(1) the covenant not to compete is agreed upon during the sale of a business. The person selling the business and the partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time; or
(2) the covenant not to compete is agreed upon in anticipation of the dissolution of a business. The partners, members, or shareholders, upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation may agree that all or any number of the parties will not carry on a similar business within a reasonable geographic area where the business has been transacted.
Each exception carries its own limits right on the face of the statute: reasonable time and geography on a sale, and on a dissolution, geography tied to where the business has actually been transacted.
The drafting point is where the covenant lives, not what it says. If the founder is both a seller and a post-closing employee, the restriction belongs in the purchase agreement running against the seller, not in the employment agreement running against the employee. Two documents. Only one of them can carry the covenant.
Subdivision 2(c) saves the rest of the contract: “Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete.” A void non-compete doesn’t take the confidentiality clause down with it.
Layer 5: the duty of loyalty, while the employee still works for you
Most of the damage in a departure case happens before the resignation, and Minnesota common law reaches it with no agreement at all.
An employee’s duty of loyalty prohibits her from soliciting the employer’s customers for herself, or from otherwise competing with her employer, while she is employed.
Rehabilitation Specialists, Inc. v. Koering, 404 N.W.2d 301, 304 (Minn. Ct. App. 1987) (citing Sanitary Farm Dairies, Inc. v. Wolf, 261 Minn. 166, 112 N.W.2d 42 (1961)).
The duty has a real boundary, and the court drew it in the very next sentence:
An employee has the right, therefore, while still employed, to prepare to enter into competition with her employer.
Id. at 304.
And where one ends and the other begins is a fact question, not a rule:
There is no precise line between acts by an employee which constitute prohibited “solicitation” and acts which constitute permissible “preparation.” … Whether an employee’s actions constituted a breach of her duty of loyalty is a question of fact to be determined based on all the circumstances of the case.
Id. at 305.
The same opinion said that an employee’s breach of the duty of loyalty “may constitute unfair competition,” id. at 306, and that the lack of an existing contract with the solicited customer doesn’t defeat the claim — “Beverly was a customer of RSI, and it was Koering’s duty to attempt to secure additional contracts from it for RSI, not for herself.” Id. at 305. The court reversed a summary judgment for the former employee and sent the case back for trial.
For the employer, this layer takes no drafting and the most attention. The evidence that proves it — calendar entries, forwarded emails, file access logs, badge data, draft contracts prepared on company systems — has a short shelf life, and it often expires on its own. Preservation on day one is the whole case.
Notice periods and garden leave: still an open question
Employers ask whether they can require, say, 60 days’ written notice of resignation, keep paying the employee, and keep the employee away from customers during that stretch.
Here’s the textual argument, and here’s where it stops. Section 181.988, subd. 1(a), defines a covenant not to compete as an agreement restricting the employee “after termination of the employment.” A notice period runs before termination — during the employment, when the duty of loyalty already applies. On the face of the definition, a provision that only restricts an employee while still employed and still paid doesn’t meet the statutory definition.
That’s a textual argument, not a settled rule. We didn’t locate a Minnesota appellate decision on whether a notice or garden-leave provision falls outside § 181.988, subd. 1(a), and until there is one, treat this as untested. The text itself gives you two design cautions:
- Keep the pay running. The argument depends entirely on the employment not having terminated.
- Keep it short, and don’t let it work as a post-employment restraint. A “notice period” long enough to function as a competitive blackout invites the argument that it’s a covenant not to compete by another name, and the statute has no blue-pencil provision.
The one-way fee provision is why you get this right
Minn. Stat. § 181.988 says the same sentence twice, once at subdivision 2(d) and again at subdivision 3(c):
In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing rights under this section reasonable attorney fees.
It’s discretionary, and it runs one way. There’s no matching provision for an employer that successfully defends. That lopsidedness is what makes a demand letter asserting a void covenant an expensive thing to send.
The choice-of-law workaround is closed for claims under the section. Subdivision 3(a) bars an employer from requiring an employee “who primarily resides and works in Minnesota,” as a condition of employment, to agree to adjudicate a Minnesota claim outside Minnesota or to be deprived of “the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.” Such a provision is voidable at any time by the employee, and if voided, “the matter shall be adjudicated in Minnesota and Minnesota law shall govern the dispute.” Subd. 3(b). “[A]djudication includes litigation and arbitration.” Subd. 3(d).
Both express limits are real. The subdivision speaks of an employee who primarily resides and works in Minnesota — both, not either. And subdivision 3(e): “This subdivision applies only to claims arising under this section.” It isn’t a general Minnesota choice-of-law statute, and it doesn’t reach a breach-of-NDA or trade secret claim under the same agreement.
Fee-shifting is what makes a claim worth bringing. We mapped Minnesota’s fee-shifting statutes, including § 325C.04 for trade secret claims, here.
The implementation checklist
Do these in order. Layer 1 is the only one that works without a signature, and it’s the one most companies have never actually built.
- Inventory what you’re protecting, specifically. “Our confidential information” isn’t a claim. The pricing model, the customer file, the source module, the process spec — name them.
- Restrict access to them. Not everyone needs everything, and restriction is the evidence that proves § 325C.01, subd. 5(ii).
- Mark them. It costs next to nothing and persuades out of all proportion. The statute’s counterweight clause means unmarked isn’t fatal, but marked is proof.
- Rewrite the confidentiality agreement, and put the 18 U.S.C. § 1833(b)(3) notice in it — directly or by cross-reference to a reporting-policy document. Do it at the next update; the statute is written to apply to agreements “entered into or updated after” enactment.
- Check your nonsolicitation terms against § 181.9881 if you’re a staffing agency, MSP, or any other service provider. If an existing contract contains a void no-hire covenant, subdivision 2(c) requires you to notify your own employees.
- Move the covenant to the purchase agreement in any acquisition, running against the selling owners, temporary and geographically restricted. § 181.988, subd. 2(b)(1).
- Build an exit procedure: return-of-property certification, device collection, same-day credential revocation, and a preservation hold on the departing employee’s mailbox, drive, and access logs.
- Quarantine incoming hires. Written instructions not to bring or use former-employer material. Your exposure under § 325C.01, subd. 3, is independent of theirs.
- Stop issuing employee non-competes. Anything signed on or after July 1, 2023 is void, and asserting it creates one-way fee exposure under § 181.988, subd. 2(d).
- Fix the out-of-state template. A Delaware choice-of-law and forum clause isn’t a workaround for an employee who primarily resides and works in Minnesota, on a claim arising under § 181.988.
If you’re the departing employee
- The covenant being void doesn’t make the files yours. Chapter 325C doesn’t require an agreement, and it reaches the person who took the information and the company that used it.
- Don’t forward company material to a personal account. It shows up in the logs, and it turns up in nearly every one of these cases that goes badly.
- You may prepare to compete while employed. You may not solicit while employed. Koering, 404 N.W.2d at 304.
- Keep the threatening letter. Section 181.988, subd. 2(d), exists for a reason.
A promise and a habit
A non-compete is a promise. A trade secret program is a habit. The 2023 statute swapped the first for the second, and the two don’t trade one-for-one the way employers assume.
You can get a promise in an afternoon from somebody with no bargaining power. A habit has to be built before you need it, by busy people, protecting information that hasn’t walked out the door yet. That’s a harder ask, and it’s why so many Minnesota companies are less protected in 2025 than they think.
But it’s the better rule, and not only for employees. A non-compete protects the employer from competition. A trade secret program protects the thing the employer actually built. The first restrains a person’s livelihood on the theory that the restraint stands in for the asset. The second protects the asset directly and lets the person go to work.
Minnesota picked the second. The employers that did the work are, if anything, better off than they were, because what protects them now doesn’t depend on anybody having signed anything.
Madgett Law, LLC advises Minnesota businesses on post-2023 protection programs — confidentiality agreements, trade secret hygiene, nonsolicitation and service-contract compliance under § 181.9881, covenant structure in business sales, and emergency relief when information walks out the door. If a key employee has resigned, the first 72 hours are about preservation. Send us a message or call 612-470-6529.
Sources: Minn. Stat. § 181.988 (subd. 1(a), definition of covenant not to compete and the express nondisclosure and nonsolicitation carve-outs; subd. 1(c)–(d), employee and independent contractor; subd. 2(a), void and unenforceable; subd. 2(b), sale-of-business and dissolution exceptions; subd. 2(c), severability of other provisions; subd. 2(d) and 3(c), discretionary attorney fees for an employee; subd. 3, choice of law and venue, including the “resides and works” and “only to claims arising under this section” limits), enacted 2023 Minn. Laws ch. 53, art. 6, § 1, with the session-law effective-date clause “This section is effective July 1, 2023, and applies to contracts and agreements entered into on or after that date”; Minn. Stat. § 181.9881 (subd. 1, definitions of customer, employee, and service provider; subd. 2, void no-hire covenants and the employee-notice obligation; subd. 3, software-consulting exemption), enacted 2024 Minn. Laws ch. 110, art. 2, § 12, with the session-law effective-date clause “This section is effective July 1, 2024, and applies to contracts and agreements entered into on or after that date”; Minn. Stat. § 325C.01 (subd. 2, improper means; subd. 3, misappropriation; subd. 5, trade secret and the reasonable-efforts element); Minn. Stat. § 325C.02 (injunctive relief, including threatened misappropriation and compelled affirmative acts) — all from the Minnesota Office of the Revisor of Statutes. Rehabilitation Specialists, Inc. v. Koering, 404 N.W.2d 301, 304–06 (Minn. Ct. App. 1987), citing Sanitary Farm Dairies, Inc. v. Wolf, 261 Minn. 166, 112 N.W.2d 42 (1961). 18 U.S.C. § 1833(b) (immunity and the notice requirement at (b)(3), the cross-reference safe harbor at (b)(3)(B), the targeted non-compliance penalty at (b)(3)(C), the applicability provision at (b)(3)(D), and the definition of employee at (b)(4)), Pub. L. 114-153 (May 11, 2016); 18 U.S.C. § 1836 (Defend Trade Secrets Act).
This article is general legal information about Minnesota and federal law, not legal advice, and reading it does not create an attorney–client relationship. Whether a particular nonsolicitation, notice, or garden-leave provision is enforceable in Minnesota is unsettled in part and fact-specific in the rest; the treatment of notice and garden-leave provisions under § 181.988, subd. 1(a) is a textual argument that no Minnesota appellate decision located for this article has resolved. No outcome is promised or implied.