Proposed Laws Impacting Minnesota Employers
Federal Trade Commission’s Proposed Rule to Ban Non-Compete Clauses
On January 5, 2023, the FTC issued a Notice of Proposed Rulemaking to prohibit employers from entering non-compete clauses with employees. This proposed rule would extend to all workers (paid or unpaid) and would require employers to rescind existing non-compete agreements within 180 days of publication of the final rule. This rule includes language defining “unfair methods of competition” and broadly defines non-compete agreements as: “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” It also proposes a functional test to determine if a clause is a non-compete provision, specifically, to qualify, the clause would have “the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.” While the proposed rule would not expressly prohibit non-disclosure and intellectual property agreements with employees, those agreements could be deemed impermissible non-competes if they are written “so broadly” that they “effectively preclude[ ] the worker from working in the same field.” Further, the term “worker” is defined as “a natural person who works, whether paid or unpaid, for an employer,” but, notably, would not include a franchisee in a franchisee/franchisor relationship.
The proposed rule would require employers to (1) rescind all existing non-compete provisions within 180 days of publication of the final rule, and (2) provide current and former employees notice of the rescission. If employers comply with these two requirements, the rule would provide a safe harbor from enforcement. It is important to note that the proposed rule would preempt all state and local rules inconsistent with its provisions but would not preempt state laws or regulations that provide greater protections. As a practical matter, this proposed rule would override existing non-compete requirements and practices in many states, including Minnesota.
Minnesota’s Attempt to Ban Non-Compete Clauses
The Minnesota Legislature unsuccessfully attempted to ban non-compete clauses in 2022. However, similar to the FTC, Minnesota lawmakers continue to pursue this issue and have considered legislation that would make non-compete clauses void and unenforceable in most circumstances.
On February 2, 2023, the Minnesota House of Representatives introduced HF 1237, entitled “A bill for an act relating to employment; providing that covenants not to compete are void and unenforceable; providing for the protection of substantive provisions of Minnesota law to apply to matters arising in Minnesota[.]” The House bill broadly defines non-compete agreements and would make unenforceable any agreement that restricts an employee from (a) working for another employer for a specified period of time; (b) working in a specific geographical area; or (c) working for new employer in a role that is similar to the role the employee had with the old employer. Further, the terms “employer” and “employee” are likewise defined broadly. Importantly, this bill would be retroactive too – meaning all existing agreements containing restrictive covenants would be void and unenforceable in Minnesota. Finally, the bill would provide employers with 180 days to cure any agreement made void and unenforceable by the legislation.
Similarly, on April 14, 2023, the Minnesota Senate passed comparable legislation, however, several steps remain prior to this bill officially becoming law. The Senate bill places a ban on all non-compete agreements and applies to employees and independent contractors. Notably, the following agreements are not included in the bill’s definition of a “covenant not to compete”: (1) “a non-disclosure agreement, or an agreement designed to protect trade secrets or confidential information,” or (2) “a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.” The bill also does not include covenants not to compete that are agreed upon during the sale of a business or in anticipation of dissolution of a business. As a practical matter, the Senate’s bill only “applies to contracts and agreements entered into on or after” the effective date of the law, so it is not retroactive. Further, courts may award attorney’s fees to a prevailing party if successful in enforcing their rights under this law.
As noted, the House bill and the Senate bill vary in different respects. It is unclear at this point whether the House will adopt the Senate’s language or pass its own version of the bill.
Paid Family and Medical Leave
On January 4, 2023, the Minnesota House of Representatives introduced HF 2, entitled “A bill for an act relating to employment; providing for paid family, pregnancy, bonding, and applicant’s serious medical condition benefits.” On May 2, 2023, the Minnesota House voted to pass this bill. This bill would provide eligible employees with up to 12 weeks of paid family leave and up to an additional 12 weeks of paid medical leave per year for qualifying reasons. In addition to including a number of compliance requirements (similar to an employer’s obligations under the federal Family and Medical Leave Act), this bill contains a number of provisions employers may want to note, including various notice and posting requirements, prohibitions on discrimination, interference with benefits, and retaliation, and protections related to an employee’s right to reinstatement. Notably, the proposed statute does not apply to independent contractors unless they apply to be covered, and it outlines its own definition of an independent contractor. If passed as drafted, these compliance, data, and reporting requirements would become effective on July 1, 2023, and the programs and benefits outlined by this legislation would become available starting July 1, 2025.
Earned Sick and Safe Time
Although several Minnesota cities already have enacted sick and safe time ordinances, the Minnesota Legislature is proposing legislation that would require employers to provide earned sick and safe time to any employee in Minnesota who works at least 80 hours per year, whether part-time, full-time, or seasonal. This legislation would allow employees to earn one hour of sick and safe time for every 30 hours worked, with a maximum of 48 hours of sick and safe time annually. It would also allow for a carryover of accrued but unused sick and safe time into the following year, or there is an option to pay out unused hours (but this is not required). The total amount of accrued but unused earned sick and safe time for an employee must not exceed 80 hours at any time, unless an employer agrees to a higher amount. The bill defines an employer as anyone with one or more employees and includes both public entities and private businesses. Employees may use earned ESST to: care for themselves or a family member’s mental or physical illness, injury, or other health condition; seek preventative medical or health care; seek relief from domestic abuse, sexual assault, or stalking of themselves or a family member, including obtaining services from a victim’s services organization; obtain psychological counseling, relocation or legal advice/legal action for sexual assault, domestic abuse or stalking; deal with the closure of employee’s place of business due to weather or public emergency. Notably, the proposed legislation prohibits employees from being penalized under attendance policies for protected time off, requires written notice to employees, and requires inclusion in any employee handbook. The Minnesota House passed this bill on February 16, 2023. If this legislation becomes law, Minnesota will join at least 14 other states that have passed similar forms of paid sick leave mandate.
On January 4, 2023, the Minnesota House of Representatives introduced HF 100, entitled “A bill for an act relating to cannabis use and sales[,] legalizing and limiting the possession and use of cannabis by adults.” On April 24, 2023, the Minnesota House passed this bill. In the same week, the Minnesota Senate passed a similar bill proposing legalization of cannabis use. Employers should be aware of both bills. Both bills – similar in a sense but containing several major differences, notably, tax rates and speed of expungements of past marijuana offenses – will now be assigned a conference committee so differences can be negotiated, and an agreement ultimately reached.
The House bill is important for Minnesota employers because it would revise and amend Minnesota’s Drug and Alcohol Testing in the Workplace Act (“DATWA”) and Minnesota’s Off-Duty Conduct Law. As it relates to DATWA, the bill provides that employers “must not request or require a job applicant to undergo cannabis testing or drug and alcohol testing solely for the purpose of determining the presence or absence of cannabis as a condition of employment unless otherwise required by state or federal law.” Accordingly, this bill would likely restrict employers in testing for cannabis with pre-employment drug and alcohol tests, but employers would be permitted to test employees if they have reasonable suspicion that an employee “[did] not possess that clearness of intellect and control of self that the employee otherwise would have.” However, the bill does not expand on or provide details for this reasonable suspicion “test.” In its current state, this bill would permit employers to “enact and enforce written work rules prohibiting cannabis flower and cannabinoid product use, possession, impairment, sale, or transfer while an employee is working or while an employee is on the employer’s premises or operating the employer’s vehicle, machinery, or equipment in a written policy that contains the minimum information required by [the legislation].” In sum, employers that do drug test employees may have to change a number of practices and drug testing programs, particularly those relating to testing for cannabis, if this bill, as drafted, is enacted.
Employers should also note that the House bill would impact Minnesota’s Off-Duty Conduct Law, which states that “[a]n employer may not refuse to hire a job applicant or discipline or discharge an employee because the applicant or employee engages in or has engaged in the use or enjoyment of lawful consumable products, if the use or enjoyment takes place off the premises of the employer during nonworking hours.” Minnesota’s Off-Duty Conduct Law, as amended by the bill, would specifically provide that the “[c]annabis flower and cannabinoid products are lawful consumable products for the purpose of Minnesota law, regardless of whether federal or other state law considers cannabis use, possession, impairment, sale, or transfer to be unlawful.” Because of this, an employer’s ability to refuse to hire individuals or discipline employees for their use of cannabis off-premises and not during work hours would be limited.
Although the House and the Senate have passed these bills, reconciling the differences between the two bills, and setting up the regulatory framework for taxes, rules, and licensing will likely take some time.
Protecting Consumer Privacy
The Minnesota Senate is considering SF 950, which is “[a] bill for an act relating to consumer data privacy; requiring a consumer’s consent prior to collecting personal information.” Under this bill, businesses would not be able to “collect, use, or disclose a consumer’s personal information without the consumer’s consent.” The bill outlines how a business is required to obtain a consumer’s consent, which includes notifying the consumer, at or before the point of collection of the consumer’s personal information, of the following: “the categories of personal information the business collects about the consumer”; “the categories of sources from which the business collects the personal information”; “for each category of personal information, the purpose for collecting the personal information”; and “for each category of personal information, the categories of persons to which the personal information may be disclosed and the purpose for the disclosure.” Businesses that do not comply with the bill’s requirements could be responsible for penalties, remedies, and attorneys’ fees from the Minnesota Attorney General’s Office. Notably, the bill also provides a private right of action that would allow a “damaged” consumer to “bring an action against the responsible business to cover any damages sustained, plus costs and reasonable attorney fees.”
Employers with questions or concerns regarding employment issues, including, but not limited to, these proposed laws, understanding and drafting employee policies and handbooks, conducting workplace investigations and trainings, or responding to charges of discrimination, harassment, or other litigation claims, are encouraged to contact any member of Quinlivan & Hughes’ knowledgeable Employment Law Team.