It's official; since July 1, noncompete agreements are legally invalid in Minnesota.
While the ban itself is newsworthy, I don't think that's the law's most significant piece; rather, it's the law's provisions that effectively prevent an employer from embedding a different forum state's less restrictive noncompete laws into the employment agreement, which in legalese is referred to as a "forum selection clause." Indeed, the statute provides that any contractual clause that violates this rule is "voidable at any time by the employee," and that both Minnesota law and the Minnesota courts will govern the dispute.
"So," you might be tempted to ask, "What's the potential downside for an employer in trying to insert a forum selection clause for a different state for Minnesota-based employees?"
The answer is straightforward: the statute states that, "a court may award an employee who is enforcing rights under this section reasonable attorney fees."
In that respect, Minnesota is fairly unique in allowing for the employee challenging the restrictive covenant to recover their attorney fees, as other jurisdictions have reached far different (and seemingly inconsistent) conclusions when adjudicating choice of law and venue questions, chief among them being Florida, California, New Jersey, Delaware, and yes, even New York.
One Noncompete Case Where New York Invalidated a Foreign State Choice of Law Provision
To that end, in Brown & Brown v. Johnson, New York State's highest court, the Court of Appeals, went to great lengths to highlight the differences between Florida and New York law with respect to noncompetes, stating:
"Specifically, Florida law requires a party seeking to enforce a restrictive covenant only to make a prima facie showing that the restraint is necessary to protect a legitimate business interest, at which point the burden shifts to the other party to show that the restraint is overbroad or unnecessary (see Fla. Stat. § 542.335[1][c] ). If the latter showing is made, the court is required to “modify the restraint and grant only the relief reasonably necessary to protect” the employer's **361 ***610 legitimate business interests (Fla. Stat. § 542.335[1][c] ). In contrast to this focus solely on the employer's business interests, under New York's three-prong test, '[a] restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. A violation of any prong renders the covenant invalid” (BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388–389, 690 N.Y.S.2d 854, 712 N.E.2d 1220 [1999] [citations omitted] ...
"Whereas Florida shifts the burden of proof after the employer demonstrates its business interests (see Fla. Stat. § 542.335[1][c] ), New York requires the employer to prove all three prongs of its test before the burden shifts ... Further, Florida law explicitly prohibits courts from considering the harm or hardship to the former employee (see Fla. Stat. § 542.335[1][g] [1] ). This directly conflicts with New York's requirement that courts consider, as one of three mandatory factors, whether the restraint “impose[s] undue hardship on the employee” (BDO Seidman, 93 N.Y.2d at 388–389, 690 N.Y.S.2d 854, 712 N.E.2d 1220).
"Additionally, under Florida law, courts are required to construe restrictive covenants in favor of protecting the employer's interests, and may not use any rules of contract interpretation that would require the construction of a restrictive covenant narrowly or against the restraint or drafter (see Fla. Stat. § 542.335[1][h] ). In contrast, New York law provides that “[c]ovenants not to compete should be strictly construed because of the ‘powerful considerations of public policy which militate against sanctioning the loss of a [person's] livelihood’ ” (Gramercy Park Animal Ctr. v. Novick, 41 N.Y.2d 874, 874, 393 N.Y.S.2d 977, 362 N.E.2d 608 [1977] [citations omitted], quoting Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 272, 246 N.Y.S.2d 600, 196 N.E.2d 245 [1963]; see BDO Seidman, 93 N.Y.2d at 389, 690 N.Y.S.2d 854, 712 N.E.2d 1220; Reed, Roberts Assoc., 40 N.Y.2d at 307, 386 N.Y.S.2d 677, 353 N.E.2d 590 [noting “stricter standard of reasonableness” in this area, and “judicial disfavor of these covenants”]; Goodman v. New York Oncology Hematology, P.C., 101 A.D.3d 1524, 1526, 957 N.Y.S.2d 449 [3d Dept.2012]).
In conclusion, the Brown court then struck down the Florida choice of law provision, stating:
"Considering Florida's nearly-exclusive focus on the employer's interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee—in contrast with New York's requirements that courts strictly construe restrictive covenants and balance the interests of the employer, employee and general public—defendants met their “ ‘heavy burden’ of proving that application of Florida law [to the non-solicitation provision of the parties' agreement] would be offensive to a fundamental public policy of this State” (Welsbach Elec. Corp., 7 N.Y.3d at 632, 825 N.Y.S.2d 692, 859 N.E.2d 498; see Cooney, 81 N.Y.2d at 80, 595 N.Y.S.2d 919, 612 N.E.2d 277). Accordingly, the employment agreement's choice-of-law provision is unenforceable in relation to the non-solicitation provision, and New York law governs plaintiffs' claim based on Johnson's alleged breach thereof."
Brown & Brown, Inc. v. Johnson, 25 N.Y.3d 364, 369–70, 34 N.E.3d 357, 360–61 (2015).
The Takeaway
The moral of the story is fairly obvious:
Don't take for granted that you can simply contract away a problematic home-state noncompete law.
