New Non-Competes Explained in South Dakota, Minnesota, and Iowa

Employers in South Dakota, Minnesota, and Iowa must adjust to significant changes in the enforcement of non-compete agreements. Moreover, the Federal Trade Commission (FTC) has recently enacted a rule that, broadly speaking, eliminates non-compete agreements across the board, influencing a wider range of employers.

South Dakota:

In South Dakota, non-compete agreements are valid, restricting individuals from operating within the same business or profession as their former employer for up to two years after leaving the company. These agreements also impose geographical limits. Specific to healthcare practitioners, such as physicians and therapists, non-compete agreements signed from July 1, 2023, onwards can be nullified, except when linked to the sale of a practice. However, non-solicitation and non-disclosure agreements are still valid and enforceable.

Minnesota:

Minnesota experienced a major change on July 1, 2023, with the prohibition of most non-compete agreements, except under circumstances like the sale of a business. The state law now requires "reasonable geographic areas" and time limits for any remaining enforceable agreements. Non-solicitation and non-disclosure agreements are not affected by this change, which also prohibits clauses mandating out-of-state litigation for employees. The 2023 law enables courts to compensate employees with attorneys' fees when they successfully defend their rights under this new regulation.

Iowa:

Iowa’s approach to non-compete agreements is governed by judicial precedent rather than specific statutes. For such agreements to be enforceable, they must be reasonably necessary for protecting the business's interests, not overly restrictive on the employee's rights, and not harmful to the public interest. A new law now restricts non-compete agreements for "licensed mental health professionals."

FTC Proposal:

The FTC’s new rule on non-compete agreements, which is scheduled to go into effect on September 4, 2024, would override conflicting state laws, impacting a broader spectrum of employers. This non-compete ban is designed except when tied to the sale of a business or a substantial ownership interest, aligning with exceptions similar to those in South Dakota and Minnesota. As of the date of this article, at least four federal lawsuits have been file, with opponents seeking to enjoin the FTC’s rule. Whether the rule is ultimately enacted will depend on the outcome of the pending federal litigation.

Non-disclosure agreements remain valid unless they effectively act as non-compete clauses. Crucially, the FTC's proposal also requires employers to proactively rescind existing non-compete agreements.

As these regulatory changes take effect, it is crucial for employers and HR professionals to monitor these developments closely to ensure compliance. Consulting with knowledgeable legal professionals to understand the implications of the non-compete agreement ban and adapt to these changes is essential. For tailored advice and insights, contact our experienced legal team at Woods Fuller.