Minnesota lags as sentiment builds against noncompete deals

In his first session as a state lawmaker, Sen. Scott Jensen, a physician in Chaska, introduced a bill to stop hospitals and clinics from imposing noncompete agreements on doctors.

Jensen argued they limit competition and patient choice. Hospitals resisted, and the measure died. That was two years ago.

This spring, another doctor new to the Legislature, Rep. Alice Mann of Lakeville, joined Jensen in reviving the measure. It became the only attempt by Minnesota lawmakers to arrest the growing use by employers of noncompete clauses in worker contracts.

"What does a noncompete do? I think it works against the common good," Jensen said in an interview last week.

Across the country, lawmakers and labor activists are striking back at noncompetes. They aim to reverse two decades in which such arrangements spread from highly paid executives and experts in competitive, technical workplaces to low-wage, low-skilled workers in settings as common as fast-food restaurants.

"We're at peak noncompete. The use of noncompetes across the employment-law landscape is at an all-time high," said John Ella, a Minneapolis lawyer who for 20 years has had clients on both sides of noncompete disputes. "Change is in the wind. I've been feeling this for months."

The topic roared into the national headlines two years ago when Illinois officials confronted the Jimmy John's sandwich chain for imposing noncompete restrictions on its workers. Jimmy John's stopped the practice almost immediately.

But the debate continues to percolate as new examples of extreme noncompete deals surface and more governments take action. Some estimates say that 1 in 5 jobs in the U.S. are now covered by a noncompete arrangement.

On the presidential campaign trail last month, former Vice President Joe Biden listed it in a litany of working-class problems.

"You have to sign noncompete agreements if you work for a fast-food chain, so you won't go across town to get another job at a fast-food chain," Biden said. "Look at what's happening to the American workers. They're being stifled."

California for years has prohibited noncompete agreements. Last year, Massachusetts banned them. This year, a mix of Democratic- and Republican-led legislatures in seven states restricted noncompete deals in some form. North Dakota bans them except after an entrepreneur sells his or her business. In Florida, a court's ruling brought an end to noncompetes for doctors.

Noncompete arrangements historically were designed to protect the trade secrets and innovations of companies. For agreeing not to compete with them, an employer would pay executives or professionals an extra amount based on the time the firm wanted the person out of the fray.

But today, when unemployment is near record low levels and labor is in short supply, many businesses use noncompete arrangements to hold onto employees and reduce their hiring costs. Critics say they restrict labor competition and suppress wages.

"No matter how low unemployment gets, wage growth is still very modest. Why does that happen? In part, it happens because of stuff like this," said Keith Ellison, Minnesota's attorney general.

Ellison last month led a group of 20 state attorneys general, including four from Republican-led states, in writing a letter to the Federal Trade Commission urging it to forbid employers from imposing noncompete arrangements on workers, particularly those in low-wage jobs. They said the FTC can move faster than lawmakers in Congress and state legislatures.

As a member of Congress before being elected attorney general, Ellison sponsored bills to limit noncompete agreements. He thinks policymakers should be using all avenues to end them.

"We're litigating on these issues. We're hoping the Legislature will pursue it," Ellison said. "We're trying to get administrative action, which is what the FTC letter is all about. We're trying on all fronts."

California prosecutors sue out-of-state companies that impose noncompete deals on workers within that state. They also fought owners of fast-food franchises and high-profile Silicon Valley companies that tried to get around the state's noncompete ban by forging deals not to poach workers. Its attorney general, Xavier Becerra, joined Ellison in pressing the FTC for a nationwide ban.

"Employers should compete for workers with wages, benefits and quality of work, not with anticompetitive and one-sided provisions," Becerra said in a statement.

Lawyers who specialize in employment issues are closely following the efforts to constrain them. In addition to affecting their clients, any changes may affect their livelihood since conflicts over noncompete agreements have been a lucrative source of work.

In Minnesota, restrictions have emerged only through litigation. For instance, a ruling in a Minnesota appeals court case last year made clear that employers must disclose to a potential employee when he or she is offered a job, before it is accepted, that it comes with a noncompete agreement.

Two years after joining a medical group in the 1980s, its bosses approached Jensen with a noncompete deal and he agreed to it with little thought. It said that if Jensen ever left, he could not practice within 15 miles of the clinic for one year.

More than a decade later, Jensen decided to go out on his own and planned to join an office that was a 17-mile drive from his longtime clinic. The owners of his medical group sued to stop him, saying his new office was within a 15-mile radius — as the crow flies.

"I told them my patients wouldn't be crows," Jensen said. "They didn't back down. I thought it was unfair. I was still willing to go with the noncompete. I just thought it should be measured by roads, not by how birds fly."

In 2001, a state judge ruled against Jensen. He bid his patients goodbye and moved to a practice even farther away. "I had patients weeping and crying in my office when they saw me for their last visit," he said. "They said, 'This isn't fair. Why should I be penalized because of business arrangements?' "

Shortly after his election to the state Senate in 2016, Jensen and several legislators tried to mediate a similar conflict between Mayo Clinic, a hospital in Red Wing and their respective groups of doctors. Those sides worked it out, but Jensen thought the Legislature should free all doctors from such disputes.

He wrote a short bill that drew criticism from the Minnesota Hospital Association and several of his fellow Republicans. Rural hospitals need noncompete pacts to retain doctors they recruited under deals that include medical school tuition reimbursements, said Mary Krinkie, vice president of government relations for the hospital group. And in the metro area, providers use them to "prevent a medical arms race," she said.

"Most health care professionals believe the medical arms race is one of the contributing factors to rising health care costs," Krinkie said. Decisions by insurance companies about network coverage create more stress on doctor-patient relationships than noncompetes do, she said.

This spring, the DFL-led House passed the revived bill out of committee, though it was hotly debated. "Of all the bills I carried, this was the most contentious," said Mann, a Democrat. "My Republican colleagues felt I should not be messing with this."

The Republican-led Senate did nothing, not even scheduling a hearing on it.

"To me what seemed funny was why Republicans wouldn't be willing to run with this," Jensen said. "Any good government should try to create a free marketplace. There's no question I was disappointed in the fact I couldn't get any traction. I was glad Dr. Mann was able to, but I was the guy who wrote the bill."

Evan Ramstad • 612-673-4241