Ramstad: Effort to change the ban on noncompetes emerges in the Legislature

As the Legislature enters its final two weeks, keep an eye on the budget talks for a change that some Minnesota businesses and Republicans are eager to make — partly repealing the ban on noncompete agreements for workers in the state.

Legislators took up a bill that would have allowed businesses to impose noncompete agreements on all workers making over $500,000, and on those making over $120,000 who participated in the “creation, analysis or modification of confidential, proprietary or trade secret information.”

That bill hasn’t yet made it to the floor of either the House or Senate. Now, business trade groups are pressing House Republicans to use the noncompete measure as a negotiating weapon in talks over the state budget, which must get done by May 19.

Noncompetes are standalone contracts or clauses within larger employment agreements that forbid workers from going to work for a competitor for a specified time after leaving their employer. Critics see them as unreasonable restrictions on workers’ freedoms, while proponents say companies need them to safeguard their secrets and protect financial value.

Four other states also forbid them: California, Colorado, North Dakota and Oklahoma. That mix of red and blue states belies the partisan divide that emerged over noncompetes.

The Federal Trade Commission under Joe Biden last year crafted a nationwide ban on noncompetes that was immediately tied up in litigation. Under Donald Trump, the FTC is re-examining the ban and dropping appeals of court rulings that blocked parts of it.

In Minnesota, Democrats passed the noncompete ban during the prolific 2023 session they controlled. Many other initiatives dominated the news at the time, including cannabis legalization, paid family leave and free school lunches.

I supported that ban two years ago. In a tight labor market, I believed both employers and policymakers needed to do the most they could to lower barriers to jobs, increase competition in the workforce and promote mobility between jobs. I’d also heard extreme stories about employers tying up former employees in court longer than the duration of a noncompete agreement.

Now, however, I’m hearing that the ban is leading some Minnesota companies to move cutting-edge research and development (R&D) outside the state. I asked several companies to speak about this on the record, but none did.

Even so, this is a yellow flag that lawmakers should consider.

Rep. Emma Greenman, a Minneapolis Democrat who helped write the ban two years ago, told me she’s open to modifying it if Minnesota companies are indeed being hurt. No one has stepped before the Legislature with a tale of such loss, however.

“I keep asking, ‘Can you give me an example of what you’re worried about?’” Greenman said last week.

Business representatives and some Republican lawmakers say that the ban on noncompetes wound up being more sweeping than anticipated.

“There was a bill, a more limited bill, that had some committee hearings. But then the final version that was passed into law was never heard ... until it came into conference committee,” Rep. Harry Niska, the GOP floor leader this year, said during a hearing in March on his proposal to modify the ban.

Now Republicans are maneuvering for a similar last-minute bargain. It may happen in the final days of the session, when lawmakers are under the most pressure to get the budget done.

Nine of the state’s biggest business trade groups, including the Minnesota Chamber of Commerce, Midwest Food Products Association, Medical Alley Association and Minnesota Business Partnership, are eager to modify the noncompete ban.

They say it has led Minnesota’s multinational companies to hire workers in other states.

“We can do R&D anywhere we want. We’ve got facilities everywhere,” Tod Carpenter, CEO of Bloomington-based industrial filter maker Donaldson Co., told me last week. “And so then the question becomes, ‘How do we keep Minnesota at the forefront of all of this?’”

Business leaders acknowledge noncompetes should be banned in low-wage workplaces and in some industries, such as TV broadcasting, where competitiveness doesn’t have the same macroeconomic impact that it does in, for instance, medtech.

“There’s no dispute that low-wage workers should not be subject to noncompetes,” Ryan Mick, a Minneapolis attorney and lobbyist for the Minnesota Employment Law Council, said at the hearing for Niska’s bill. “But employers, entrepreneurs, our existing job creators, have legitimate interests, too.”

Those interests seem to me adequately covered by state and federal laws on the protection of trade secrets, intellectual property and copyrights. But Carpenter said they’re not.

While Donaldson is being granted patents on a near-daily basis, the company doesn’t patent every idea it develops, he pointed out. That’s where noncompetes offer a level of protection that other laws don’t, Carpenter said.

Of course, a noncompete won’t help a company if an employee quits and hands over trade secrets to a competitor in spite.

“If it’s not protected by trade secrets law, there’s nothing about a noncompete that would prevent you from picking up the phone to a competitor and saying, ‘I’m not asking for any money, I’m not asking for a job. But let me tell you these things,’” Greenman said.

Talking with people involved in the effort to modify noncompetes, I detected more than a whiff of anger at all the legislation Democrats passed in 2023 that raised the cost of doing business in Minnesota. Business owners and leaders are upset not just at the laws themselves, but the way they were passed.

Details on pro-worker measures such as the sick and safe time law emerged late in that session, for instance. Today, they’re waiting for a systems test on paid family and medical leave benefits ahead of the Jan. 1, 2026, start date for that program.

The Legislature is now twisted up because spending growth outran revenue growth. Democratic leaders say they would raise taxes if they could, but the Republicans won’t let them. No Democrat to my knowledge has pointed out that, if economic growth were a little better in Minnesota, the state’s budget crunch wouldn’t be so bad.