Minnesota Voided Employee Non-Competes. Deals Still Work — but Retention Doesn't.

Since July 1, 2023, Minnesota has been a non-compete state in name only. Minn. Stat. § 181.988 provides that “[a]ny covenant not to compete contained in a contract or agreement is void and unenforceable.”

Out-of-state acquirers routinely miss this, and they miss it in a specific and expensive way: they assume the ban kills their deal protections, or they assume their standard employment agreements still work. Both assumptions are wrong, and they are wrong in opposite directions.

What the statute actually voids

A “covenant not to compete” is defined as an agreement between an employee and employer restricting the employee, after termination, from performing work for another employer for a specified period, in a specified geographic area, or in a similar capacity.

The prohibition is broad. It applies regardless of seniority or compensation — there is no carve-out for executives, and no salary threshold above which the ban stops applying. A chief technology officer earning seven figures has the same protection as a junior sales representative.

Three things are expressly outside the definition and therefore survive:

• Nondisclosure agreements
• Trade secret protections
• Nonsolicitation agreements

That last one carries a great deal of weight in practice. A properly drafted customer or employee nonsolicit remains available in Minnesota, and for many businesses it protects most of what a non-compete was actually protecting.

The sale-of-business exception survives, and it is the one that matters

The statute preserves two exceptions, and the first is the reason M&A in Minnesota is unaffected in its core mechanics:

“The person selling the business and the partners, members, or shareholders, and the buyer may agree on a temporary and geographically restricted covenant not to compete.”

A second exception permits partners, members, or shareholders to agree not to carry on a similar business within a reasonable geographic area upon or in anticipation of dissolution.

So a buyer can still take a non-compete from the selling equityholders. That is intact. Note the qualifiers, though — “temporary and geographically restricted.” The exception is not a license for a perpetual nationwide restraint, and a covenant that ignores those words invites a fight about whether it fits the exception at all.

Where buyers get surprised

Here is the gap. The sale-of-business exception runs to the person selling the business and the partners, members, or shareholders. It does not run to employees generally.

Consider a typical lower-middle-market acquisition: two founders hold most of the equity, and there are four key employees — a head of engineering, two senior salespeople, a plant manager — who hold none, or hold options that cash out at closing without making them selling shareholders in any meaningful sense.

The founders can be bound. The four people who actually run the business day-to-day cannot. Any non-compete they sign after July 1, 2023 is void, and your Delaware choice-of-law clause will not save it.

If the investment thesis depends on those four staying put, the diligence question is not “do they have non-competes.” It is “what makes them stay when nothing legally requires them to.” Equity that vests, deferred compensation, retention bonuses tied to milestones, and a genuine reason to want the job. That is a real cost, and it belongs in the model rather than in the assumption that paper handles it.

The choice-of-law workaround is closed

The obvious dodge — govern the agreement by the law of a friendlier state and require litigation there — is specifically foreclosed. An employer may not require a Minnesota-based employee to adjudicate outside Minnesota a claim arising in Minnesota, nor deprive the employee of the substantive protection of Minnesota law.

This is worth flagging for acquirers who intend to paper the acquired workforce onto their national employment templates post-closing. Those templates very often contain a non-compete and a home-state choice-of-law clause. Rolling them out to Minnesota employees produces a void covenant and an unenforceable forum clause.

Fees run one direction

The statute authorizes courts to award reasonable attorney fees to employees enforcing their rights under it, on top of injunctive relief and other remedies.

That asymmetry deserves attention. Attempting to enforce a void non-compete against a departing Minnesota employee is not merely futile — it creates exposure. A demand letter sent on a post-July-2023 covenant is an invitation to a fee claim. Any buyer inheriting a portfolio company’s litigation posture should know whether counsel is still sending those letters.

Timing is everything, and it is a hard line

The statute applies to agreements entered into on or after July 1, 2023. It is not retroactive. Non-competes signed before that date are unaffected and remain governed by prior Minnesota common law, which enforced reasonable restraints supported by adequate consideration.

For a diligence reviewer, that turns the date on the signature page into the first thing worth reading. A target may hold a stack of employment agreements where the older ones are enforceable and the newer ones are not — and where an employee who signed in 2021 and was re-papered in 2024 has quietly traded an enforceable covenant for a void one.

A short diligence checklist

1. Date every restrictive covenant. Pre- and post-July 1, 2023 agreements live in different legal worlds.
2. Separate the sellers from the staff. Only selling equityholders can be bound going forward, and only temporarily and within a geographic limit.
3. Read the nonsolicits carefully. They survive and may be carrying more weight than anyone realizes.
4. Confirm NDAs and trade secret protections are actually in place. These are now doing work the non-compete used to do.
5. Price key-person risk instead of assuming it away. If four people can walk to a competitor the day after closing, that is a valuation input.
6. Check what post-closing employment paper will be rolled out. A national template with a non-compete and out-of-state choice of law is a liability in Minnesota, not a protection.

Regional note

Minnesota’s neighbors have not followed. Wisconsin, North Dakota, and South Dakota each treat restrictive covenants differently, and a company operating across the region may have enforceable covenants for some employees and void ones for others based on nothing but where they sit. For a buyer acquiring a multi-state operation headquartered in the Twin Cities, that patchwork is the actual picture — not a single answer.

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Sources

• Minn. Stat. § 181.988, current text — revisor.mn.gov (retrieved August 7, 2026). Definition of “covenant not to compete”; the void and unenforceable provision; exclusion of nondisclosure, trade secret, and nonsolicitation agreements; the sale-of-business and dissolution exceptions including the “temporary and geographically restricted” limitation; the choice-of-law and venue restrictions; and the attorney fee provision.
• The July 1, 2023 effective date and the statute’s prospective-only application were confirmed against contemporaneous analyses published by Stinson LLP and Weil (retrieved August 7, 2026).

The treatment of restrictive covenants in Wisconsin, North Dakota, and South Dakota is noted above only as a contrast and has not been independently verified here; it will be the subject of a separate piece.

Nothing here is legal advice. Confirm current status before acting.