Minnesota’s 2023 legislative session has resulted in numerous laws that have significant implications for Minnesota employers. The Minnesota legislature passed laws (1) banning non-competes, (2) expanding nursing mothers’ rights in the workplace, (3) legalizing recreational marijuana, (4) prohibiting inquiries into job applicant’s salary history, (5) mandating statewide paid sick leave, and (6) mandating paid family and medical leave.
1. Non-Compete Ban: Effective July 1, 2023
Minnesota has become the fourth state to ban virtually all covenants not to compete, joining California, Oklahoma, and North Dakota. Effective July 1, 2023, the new law prohibits Minnesota employers from entering into non-competes with any employee or independent contractor. The law is not retroactive, so existing non-competes will not be affected by this new law, although it may become more difficult for employers to convince a judge to enforce a non-compete in light of existing case law and the legislature’s decision to ban non-competes. The law does not ban agreements prohibiting solicitation of customers or employees or confidentiality agreements, which remain enforceable under Minnesota law.
The law carves out two narrow exceptions in the context of certain business transactions. First, the law allows non-competes that are agreed to during the sale of a business where the agreement prohibits the seller from carrying on a similar business within a reasonable geographic area for a reasonable period of time. Second, the law allows non-competes in anticipation of the dissolution of a business in which the dissolving partnership or entity agrees that the partners, members, or shareholders will not carry on a similar business in a reasonable geographical area for a reasonable period of time.
While the non-compete ban will have significant impacts on Minnesota employers, non-solicitation and confidentiality agreements remain enforceable and powerful tools to protect businesses’ customer goodwill, employees, and confidential information (in addition to other legal remedies).
2. Expanded Protections for Nursing Mothers: Effective July 1, 2023
The Minnesota legislature expanded nursing mothers’ rights in the workplace by amending the existing statute. The changes go into effect on July 1, 2023.
Unlike its predecessor, the new law (1) is not limited to the first twelve months after birth, (2) is not required to run concurrently with any other break times already provided to the employee, and (3) does not allow employers to deny nursing breaks for any reason, including because the break time “unduly disrupt[s] the operations of the employer.”
In addition, the law expands the definition of reasonable pregnancy accommodations to include temporary leaves of absences and modifications to work schedules or job assignments.
3. Recreational Marijuana: Effective August 1, 2023
Minnesota has become the twenty-third state to legalize recreational marijuana. While the anticipated law declassifies marijuana as a “drug” under the Minnesota’s Drug and Alcohol Testing in the Workplace Act (DATWA), it would not substantially limit an employer’s ability to drug test employees for marijuana or discipline employees for using marijuana on the job.
Despite the Minnesota legislation, marijuana remains illegal under federal law, which will affect how the new law affects certain employers. For example, employees who are subject to federal Department of Transportation (DOT) regulations and who are in “safety-sensitive” positions remain prohibited from using marijuana, despite the new Minnesota law. In addition, under the new law, employers may still test for marijuana use—through a new category of “cannabis testing”—and may discipline employees who use or are impaired by marijuana in the workplace.
4. Inquiries into Salary History Prohibited: Effective January 1, 2024
Effective January 1, 2024, employers will be prohibited from inquiring into, considering, or requiring disclosure of an applicant’s salary history for purposes of determining that applicant’s compensation. The prohibition will not apply if the applicant’s pay history is a matter of public record under federal or state law.
Applicants will not be prohibited from voluntarily disclosing their pay history for the purposes of negotiating compensation. If an applicant voluntarily discloses their pay history, then the employer may consider that information “to support a wage or salary higher than initially offered by the employer.”
5. Statewide Paid Sick Leave: Effective July 1, 2024
Effective July 1, 2024, all Minnesota employers with one or more employees must provide employees with “earned sick and safe time” (ESST). The statewide law mirrors existing ESST requirements in Minneapolis, St. Paul, Bloomington, and Duluth.
Under the new law, employees must receive at least one hour of earned sick and safe time for every 30 hours worked, up to 48 hours per year. Employees are entitled to carryover up to 80 hours of ESST from one year to the next unless the employer “front-loads” 80 hours of ESST or pays out ESST at the end of the year.
ESST may be used: (1) for the employee’s own illness, injury, health condition, or preventative care, (2) to care for a “family member” for the family member’s illness, injury, health condition, or preventative care, (3) for leave related to domestic violence or personal safety issues for employee or “family member,” (4) for certain business closures by order of a “public official,” and (5) for health concerns related to the potential transmission of a communicable illness related to a public emergency.
6. Mandatory Paid Family and Medical Leave: Effective January 1, 2026
Minnesota passed a state-administered, mandatory paid family and medical leave insurance program. The law applies to all public and private employers in Minnesota regardless of size and applies to all full-time and part-time workers, with limited exceptions for seasonal workers.
To be eligible for the program, workers must have earned 5.3% of the state average annual wage in the last 12 months prior to taking leave. For 2023, the average annual wage in Minnesota is $66,924, meaning that an employee will need to have earned approximately $3,500 in the 12 months prior to taking leave to qualify for benefits.
The program will be funded by payroll contributions from both the employer and employee. Both the employer and employee will contribute .35% of the employee’s gross pay per pay period, to be paid into a fund to cover the paid leave provided by the new law. This number is subject to change, as the rates will be reevaluated each year.
Employees will receive partial wage replacement in two categories: (1) medical leave, including pregnancy, or recovery from childbirth, and (2) family leave, including caregiving leave, parental leave, safety leave, or deployment leave. Employees are eligible to receive up to 12 weeks of leave in each category and up to 20 weeks total between the two categories in one benefit year.
The amount of wage replacement will be calculated utilizing a sliding scale dependent on the employee’s current salary or hourly wage. Lower-income workers will receive a higher percentage of their total income.
Workers and employers will begin contributing to the program on January 1, 2026, when the program goes into effect.
7. Upcoming Changes to Minnesota’s Tax Treatment of Sexual Abuse/Sexual Harassment Settlements
In addition to the changes described above, Minnesota has new rules affecting the state’s rules relating to the taxability of payments made to settle sexual abuse or sexual harassment claims, affecting tax liability for both employers and employees. That and other developments at both the state and local level will be the subject of future client alerts.
The 2023 legislative session has significant impacts for Minnesota employers—which will need to reconsider their policies and practices to remain compliant with Minnesota law. By working proactively with our labor and employment team, employers can rest assured that they understand and comply with the new laws.