Minnesota recently enacted two new laws on “no poach” provisions and noncompete agreements that could impact franchising.

NO POACH

Effective May 25, 2023, Minnesota enacted a new “no poach” statute which prohibits and retroactively voids any provision of a franchise agreement that would restrict a franchisee from soliciting or hiring an employee or independent contractor of either the franchisor or another franchisee. To the extent any preexisting agreements now violate this new prohibition, affected franchisees are required to provide notice of the law to their employees, and franchisors have until May 25, 2024 to either: i) amend any franchise agreements containing a no poach provision to remove the violative provisions; or ii) sign a memorandum of understanding with all Minnesota franchisees notifying them of their rights and obligations under the law and acknowledging that any violative contract provisions have become void and unenforceable.

The commissioner of Minnesota’s Department of Labor and Industry is authorized to enforce the new law by issuing compliance orders to offenders, along with double damages (including back pay and other compensatory damages) to any aggrieved parties, reimbursement for enforcement costs, and civil penalties for repeated violations.

NONCOMPETE

Effective July 1, 2023, Minnesota also enacted a new noncompete statute which prospectively prohibits employers from entering into post-term noncompetition agreements with their “employees,” defined to include any individual—including an independent contractor—who performs services for the employer in exchange for compensation. The law does not apply to business entities unless they were formed at the direction of the employer. It also carves out nondisclosure and non-solicitation agreements from its scope, as well as agreements that merely restrict a former employee’s use of the employer’s trade secrets or client lists. Further, although the statute does not explicitly carve out the franchise relationship, franchisees arguably do not fall within the scope of the new law unless it performs services for the franchisor in exchange for compensation.

Employers may not require Minnesota workers to either waive the application of Minnesota law or agree to a non-Minnesota forum for any disputes arising under the statute. Affected employees have a private right of action to enforce their rights under the statute by seeking injunctive or other relief, as well as their reasonable attorneys’ fees.