Noncompete agreements for many lower- and middle-income workers would be banned under a proposal that DFL legislators and Attorney General Keith Ellison are pushing at the State Capitol.
The attempt to limit noncompete clauses in Minnesota comes as other states are considering ending them, and as President Joe Biden has pressed the Federal Trade Commission to block the restrictions. Whether state lawmakers will join the ranks of North Dakota, Oklahoma and California, which already have curtailed noncompete agreements, remains to be seen during a short legislative session that features a long list of worker-focused proposals.
But DFL Rep. Jennifer Schultz, an economics professor from Duluth, said the employment contract clauses that bar people from pursuing a similar job or working for a competitor during a certain timeframe are becoming more common. She said it is a critical time to make the change.
"With the workforce shortages that we're experiencing, we actually need more flexibility and job mobility. So this is really detrimental," said Schultz, who is sponsoring the bill. "It could lead to individuals leaving our state so they can work in a similar industry."
A worker would not be subject to noncompete requirements if the person earned around $75,000 or less, Schultz said, while couples would be protected up to $94,000. A family of four would qualify for protection at $112,000 or less. Companies could impose noncompete clauses on those making more than those amounts but if workers left they would need to pay them half their salary for two years.
The two-year pay requirement is too onerous and would harm small family businesses, Rep. Joe McDonald, R-Delano, said Tuesday during the bill's first hearing at the Capitol.
"I don't think it's the government's position to be meddling into contracts between employers and employees," McDonald said. "I think it's very detrimental to the economy and our small businesses."
Jill Larson, deputy executive director of the Minnesota Business Partnership, said noncompete agreements already are limited in scope and timeframe, and employers have legitimate reasons for using them.
"We feel that the bill is a disincentive for businesses to locate or expand here," Larson said.
Ellison, meanwhile, contended that noncompete clauses are impeding a free labor market, preventing entrepreneurs from starting new businesses and stopping workers from seeking better pay. He noted that under Schultz's bill, businesses still would be able to protect their interests via trade secret laws, nondisclosure agreements and other measures.
"They suppress wages. They limit freedom. They stifle innovation. They undermine the market," the attorney general said of noncompete agreements, adding that he has been working with other attorneys general to push the Federal Trade Commission to take action nationwide.
Emily Olson, an independent contractor, told legislators Tuesday that she and others in the salon and spa industry have been financially destroyed by such agreements. She left her job as a regional director of four salons when she had a baby and was forced to find work 25 miles away from the four locations.
"It became clear that my former employer owned me," Olson said. As she struggled to pay her bills she was left asking, "How could they get away with hijacking my career?"
The measure progressed Tuesday in the DFL-led House, despite Republican lawmakers voting against it. But the bill has not been scheduled for a hearing by the GOP majority in the Senate. DFL Sen. Jen McEwen, the bill's sponsor in the Senate, said the proposal is important but has "taken a backseat" to other priorities Democrats are pushing, such as paid family leave. She said it might take a couple of years to pass the change.
Despite partisan differences during the bill's first hearing, Schultz noted legislators on both sides of the aisle expressed interest Tuesday in protecting low-income workers struggling with noncompete clauses, and she hopes they could work on a deal yet this year.