Minnesota lawmakers should ban noncompete agreements to bolster workforce

The Minnesota Legislature recently passed the halfway mark of its 2023 session and will reach a soft deadline Friday to move legislation out of committees.

But so far lawmakers have done little to address the declining workforce, which is happening in Minnesota faster than most places in the U.S.

They need to lower barriers to Minnesota jobs, increase competition among the existing workforce and stop employer actions that limit mobility.

Instead, I'm noticing too many bills like one that will add licensing requirements to workers at pre-kindergartens. That should not happen. When there are fewer people to be hired in Minnesota, the state shouldn't make it harder to hire them.

At least lawmakers are considering banning noncompete agreements at Minnesota employers, which would improve labor mobility.

Noncompete agreements are deals employees sign, often when first hired and with little explanation or understanding. They prohibit workers from leaving their employer and immediately going to work for a competitor.

The Federal Trade Commission in January proposed banning them nationally. It's taking public comments through April 19, the first step in its rule-making process.

In the Legislature, bills by Sen. Alice Mann and Rep. Steve Elkins, both metro-area Democrats, to ban noncompetes are winding through committees.

Elkins became interested in the topic after seeing his daughter move to Atlanta for a new job, then be presented with a noncompete agreement to sign on her first day of work. She refused and was told to leave.

Minnesota courts have ruled employers can't surprise new employees with such legal handcuffs on the day they start work. "But there's nothing in statute and most people who find themselves in that position aren't going to be familiar with the case law," Elkins said.

Judges here have also thrown out or rewritten noncompete agreements that are overly broad. But, because most employees don't challenge noncompetes, they still have a chilling effect that benefits employers.

"So much of the economic effect that noncompetes have is not occurring through litigation," says Ryan Nunn, an economist at the Federal Reserve Bank of Minneapolis. "It's occurring at the level of a worker's understanding of what the noncompete means for them."

In 2019, Mann, a physician who was then a member of the House, wrote a bill to free the state's doctors from noncompetes. "Noncompete agreements fracture or completely sever the patient-physician relationship, which is one of the main drivers of good patient outcomes," she said.

Her Senate partner on the legislation was Scott Jensen, the Chanhassen physician who was the Republican challenger to Gov. Tim Walz last year.

That bill didn't get anywhere as Republicans stood in the way, which frustrated Jensen. He said this week that he supports Mann's latest effort.

"In the wake of COVID-19, patients are feeling more than ever like pawns in a game of health care that is controlled by big stakeholders," Jensen said. "I think this bill sends a clear message that the relationship patients have with doctors matters."

While the 2019 bill was being considered, Mann said she heard from fast-food workers, hairdressers and top executives being constrained by noncompetes. She realized the scope of the ban needed to be widened.

"It's been story after story of people who, through no fault of their own, could not work for a year or two years," she said.

Banning noncompetes will raise costs for Minnesota employers and shift more power to workers.

I understand the complaint about higher costs. But I've got no sympathy when executives, bosses and business owners complain about the loss of power.

The free market can't just be free for employers and not for employees.

In a case that shows how extreme fights over noncompetes get, the Chanhassen medtech firm PMT Corp. in 2018 sued a former salesman two years after he left for allegedly violating such an agreement. The company later extended the suit to a second former employee and the firm where both went to work, NeuroOne Medical Technologies Corp. of Eden Prairie.

The suit played out in a Minneapolis court for four years, delayed partly by the pandemic. It was settled last September just before going to trial. Terms were confidential.

NeuroOne didn't return my calls. But the publicly traded firm told investors last fall that it spent more than $750,000 on legal fees for it.

PMT's founder and chief executive, Al Iverson, said that he couldn't discuss the lawsuit. He said firms like PMT, which he described as a small player in a competitive industry, need noncompetes to survive.

"People in our business can learn how to do things and become our competitor," Iverson said. "I really think a small company would be hindered the most if we cannot protect our innovation."