House panel approves bill to limit use of employee non-compete clauses

Minnesota workers could have more freedom to change employers, under a bill approved Tuesday by the House Labor, Industry, Veterans and Military Affairs Finance and Policy Committee.

HF999 would make non-compete covenants void and unenforceable unless meeting certain criteria.

Rep. Jennifer Schultz (DFL-Duluth), the bill sponsor, said more companies are including non-compete agreements for employment. The clauses usually restrict a worker’s ability to find employment for either a specific period of time, in a specific geographical area or work for another employer in a similar capacity.

Approved by an 8-5 party-line vote, the bill was referred to the House Judiciary Finance and Civil Law Committee. Its companion, SF1629, is sponsored by Sen. Jennifer McEwen (DFL-Duluth) and awaits action by the Senate Labor and Industry Policy Committee.

“It limits these non-compete agreements, which have become much more common, particularly in low-wage occupations,” Schultz said. “This bill tries to not eliminate the use of non-competes, but just limits their use.”

The non-compete agreements would still be valid under two provisions: the employee earns an annual salary equal to the median family income for a four-person family in Minnesota or the employer agrees to pay at least 50% of the employee’s highest annual base salary earned in the previous two years for the length of any restricted period.

“This would really harm small, family business that couldn’t really provide that economically,” said Rep. Joe McDonald (R-Delano). “That seems very, very onerous and pretty wide stretching for encompassing all of Minnesota that a small company would have to pay an employee for a limited time a certain salary not to compete after they’re not even working.”

Schultz said the bill does not prohibit employers from including nondisclosure agreements and trade secret protection in contracts.

Via pre-recorded video, Attorney General Keith Ellison spoke in support of the bill.

Ellison said about one in five workers nationally have non-compete clauses. He’s also been part of a group of attorneys general to urge the Federal Trade Commission to outlaw non-compete clauses for low-wage workers.

“When your employer arbitrarily and unnecessarily limits your ability to get a new job, maybe one with higher pay, better benefits and working conditions, affording your life is much, much harder,” Ellison said. “And this is especially true if you work for low wages. This is what the non-compete clauses in employment contracts actually do; they suppress wages, they limit freedom, they stifle innovation, they undermine the market.”