Minnesota’s 2023 Legislative Session Brings Major Changes to Minnesota Employment Law

At a Glance:

• Minnesota Gov. Tim Walz has signed or is expected to sign this week multiple new laws bringing broad change to the Minnesota employment law landscape, including the Jobs and Economic Development and Labor Omnibus Budget Bill, the Paid Family Medical Leave Bill and the Recreational Cannabis Bill and changes to Minnesota’s Drug and Alcohol Testing in the Workplace Act.
• The labor bill includes a ban on post-employment noncompete agreements in Minnesota, and imposes limitations on choice of law and venue provisions in agreements with employees.
• The new laws also create new paid sick leave and paid family and medical leave rights for employees, and make changes to a number of other labor and employment laws in Minnesota.

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Gov. Tim Walz has signed or is expected to sign the Minnesota legislature’s Jobs and Economic Development and Labor Omnibus Budget Bill, bringing broad change to the Minnesota employment law landscape. Notably, the new law bans post-employment noncompete agreements in Minnesota, creates state-wide paid sick and safe time leave, prohibits restrictive franchise agreements, modifies wage disclosure protection law, provides additional protections for pregnant and nursing workers, prevents mandatory employer-sponsored meetings, and creates additional paystub requirements for construction workers, among other things. Gov. Walz signed the paid family and medical leave law, creating a new paid family and medical leave program funded by employer and employee payroll taxes and providing up to 12 weeks of paid leave in a single benefit year for an employee’s own serious health condition and up to 12 weeks of paid leave in a single benefit year for bonding, safety leave or family care, with a cap of no more than 20 weeks of total combined leave in any single benefit year. The Minnesota legislature also ended its 2023 session after passing a recreational cannabis law, amending the state’s drug and alcohol testing laws following the legalization of recreational marijuana, which is anticipated to be signed into law by Gov. Walz this week.

This article highlights some of the more significant provisions of the bill, but employers should review their current policies, plans and practices, and develop a plan to revise policies, plans and practices as necessary prior to the applicable effective dates to ensure compliance with all parts of this expansive legislation.

Table of Contents:

1. Ban on Noncompete Agreements; Substantive Protections of Minnesota Law Apply, § 181.988

2. Statewide Earned Sick and Safe Leave, §§ 181.9445-.9448 and § 177.50

3. Prohibition on Restrictive Franchise Agreements, § 181.991

4. Modification to Wage Disclosure Protection § 181.172

5. Added Protections for Nursing Mothers and Pregnant Employees, § 181.939

6. Employer-Sponsored Meetings and Communications, § 181.531

7. Wage Protection for Construction Workers § 181.165

8. Other Changes to Minnesota Employment Law

9. Paid Family and Medical Leave §§ 268B.01-.29

10. Recreational Cannabis Bill and Changes to Minnesota’s Drug and Alcohol Testing in the Workplace Act §§181.950-.957

11. Unfair Discriminatory Practices Relating to Employment or Unfair Employment Practice § 363A.08 subd. 8

Ban on Noncompete Agreements; Substantive Protections of Minnesota Law Apply, § 181.988

As reported in our previous alert on the bill’s provision banning noncompete agreements, with the enactment of the bill, Minnesota becomes the fourth state to impose a complete ban on noncompetes (joining California, Oklahoma and North Dakota). Effective July 1, 2023, the new noncompete law prohibits any post-employment noncompete agreement with an employee or independent contractor regardless of a person’s income, with only two very limited carveouts for certain noncompetes agreed upon (1) in connection with the sale of a business or (2) in anticipation of the dissolution of a business. Subject to those limited exceptions, the law provides that any “covenant not to compete,” which is “an agreement between an employee and employer that restricts the employee, after termination of employment, from performing: (1) work for another employer for a specified period of time: (2) work in a specified geographic area; or (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement” is void and unenforceable. Importantly, a “covenant not to compete” does not include nondisclosure, confidentiality, trade secret, or non-solicitation agreements (including specifically those restricting the ability to use client or contact lists or restricting the solicitation of customers). Also, because “covenant not to compete” is defined in terms of prohibiting conduct “after termination of the employment,” the new law will not prohibit agreements that restrict an employee or independent contractor from working for another business while performing services for a business. In addition, it is not clear whether an agreement between a company and a former employee who is no longer providing services to the company (such as a post-employment separation agreement between an employer and a former employee) that includes restrictions that otherwise fall within the “covenant not to compete” definition also are void and unenforceable under the new law.

In addition to the noncompete ban, subdivision 3 of the new law also prohibits employers from requiring employees who reside and work in Minnesota to agree, as a condition of employment, to a provision in “an agreement or contract” that would (1) require the employee[s] to adjudicate outside of Minnesota a claim arising in Minnesota; or (2) deprive the employee[s] of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota. While this prohibition on foreign choice of law and forum provisions certainly applies to any “covenant not to compete,” and the reference to an “agreement or contract” in this subdivision of the new law appears to be broader in scope than just any “covenant not to compete,” the inclusion of the following language at the end of the relevant subdivision creates some ambiguity regarding the scope of any “agreement or contract” covered by the non-Minnesota choice of law/venue restriction: “This subdivision applies only to claims arising under this section.” It is very possible the scope of the choice of law and venue limitation imposed by the new law will be the subject of litigation.

The new noncompete ban law is effective July 1, 2023, and applies to contracts and agreements entered into on or after that date.

Statewide Earned Sick and Safe Leave, §§ 181.9445-9448 and § 177.50

Another very significant change for employers and employees throughout Minnesota is the law’s creation of statewide sick and safe time leave. Minneapolis, St. Paul, Duluth and Bloomington currently have sick and safe time ordinances, but this law brings similar leave obligations to all Minnesota employers with one or more employees.  Under the law, beginning January 1, 2024, employees are entitled to accrue one hour of sick and safe leave for every 30 hours worked, up to a total of 48 hours per year, and employees will be able to carry accrued hours, subject to an 80-hour total cap on accrued hours. Alternatively, employers may opt to front-load 80 hours of sick and safe leave at the beginning of each applicable benefit plan year.

The statewide sick and safe time leave allows for absences due to an expansive list of reasons, including:

• To care for an employee’s own or to care for a family member’s mental or physical illness, injury, or other health condition, medical diagnosis, care, or treatment.
• Due to domestic abuse, sexual assault or stalking of the employee or the employee's family member.
• Closure of the employee's place of business due to weather or the need to care for a family member whose school or place of care has been closed due to weather or other public emergency.
• The employee's inability to work or telework because the employee is prohibited from working by the employer due to health concerns related to the potential transmission of a communicable illness.
• Due to the determined by the health authorities or a health care professional that the presence of the employee or family member of the employee in the community would jeopardize the health of others because of the exposure of the employee or family member of the employee to a communicable disease.

In addition to the broad range of permissible absences, the law also defines “family member” broadly. Specifically, the law’s definition includes nieces and nephews, aunts and uncles, children-in-law, siblings-in-law, and any “individual related by blood or whose close association with the employee is the equivalent of a family relationship” and “up to one individual annually designated by the employee.”

Under the law, employers are required to provide notice regarding earned sick and safe leave to employees and include certain information in their handbooks if they have one. The Minnesota Department of Labor is to prepare a uniform employee notice form. In addition to notice, employers must also inform employees about accrued sick and safe time via earned income statements totaling earned hours accrued for use and used during the pay period. The law also creates a private right of action for employees who have suffered a violation of the law. Finally, the law explicitly states that it does not “preempt, limit, or otherwise affect the applicability of any other law, regulation, requirement, policy, or standard that provides for a greater amount, accrual, or use by employees of paid sick and safe time or that extends other protections to employees,” and therefore employers with employees in Minneapolis, St. Paul, Duluth or Bloomington will need to continue to ensure compliance with the applicable local ordinances.

Existing employer policies, such as paid time off policies, may satisfy the requirements of the new law if the existing policies meet the accrual and usage requirements set forth in the new statute.

The new earned sick and safe leave law goes into effect January 1, 2024.

Prohibition on Restrictive Franchise Agreements, § 181.991

This new statute prohibits franchisors from restricting, restraining, or prohibiting a franchisee from soliciting or hiring an employee of a franchisee of the same franchisor. The law also renders any provision of an existing contract that violates paragraph the law void and unenforceable and requires a franchisee to provide notice to employees if their existing contract violates this section. Employers should note that the law defines “employee” to include independent contractors.

In addition, the law also provides that, no later than one year from the law’s effective date, franchisors are required to either (1) amend existing franchise agreements to remove any restrictive employment provisions that violate the law or (2) sign a memorandum of understanding with each franchisee acknowledging that any contract provisions that violate the law in any way are void and unenforceable, and notifying the franchisee of their rights and obligations under this section.

This new law is effective the day following enactment.

Modification to Wage Disclosure Protection § 181.172

The Labor Omnibus Bill also amends the current Wage Disclosure Protection law, which makes it a violation of law for employers to prohibit employees from disclosing their own wages to others. Previously, the law prohibited employers from retaliating against employees who asserted their rights under the law. Now, the amendment strengthens employee protections by revising the employer restrictions to state “[a]n employer shall not discharge, discipline, penalize, interfere with, threaten, restrain, coerce, or otherwise retaliate or discriminate” against employees who assert their rights under the law.

The amendment goes into effect July 1, 2023.

Added Protections for Nursing Mothers and Pregnant Employees, § 181.939

This new law increases protection for nursing mothers and lactating employees under § 181.939. Previously, § 181.939 limited the requirement to provide break times for employees needing to express breast milk to only the 12 months after birth, but the law amends the provision by removing the 12-month limitation. The law also now permits that break times used for expressing breast milk can run concurrently with other breaks, but that they are not required to do so. In addition, the amendments also remove language that previously allowed employers to deny employees a break to express milk if it would “unduly disrupt operations.”

The law also includes increased protections under pregnancy accommodation provisions. For example, the law amends the provision to provide that pregnancy accommodations not requiring a health care provider’s certification include not only more frequent restroom, food, and water breaks, but also longer restroom, food and water breaks. Further, reasonable accommodations for employers to consider should include a temporary leave of absence, modification of work schedules or job assignments, and providing longer break periods (in addition to seating or lifting-related accommodations, which are already identified in the existing statute).

Finally, notice provisions have also been added, which require employers to inform employees of their rights under the law at the time of hire and when an employee makes an inquiry about or requests parental leave. The information must be provided in English and the employee’s primary language. Employers that maintain a handbook, must include the notice explaining their rights under the law. The state will make sample text available to employers in the five most common languages in Minnesota.

The amendments go into effect July 1, 2023.

Employer-Sponsored Meetings and Communications, § 181.531

The law also creates a new statute, § 181.531, which bans employers from holding mandatory employer-sponsored “captive audience” meetings if those meetings are for the purpose of communicating the employer’s opinion on religious or political matters. Under the law, employers are prohibited from threatening to take or taking adverse action against employees who refuse to attend or participate in an employer-sponsor meeting, or who refuse to receive or listen to an employer communication, if the meeting/communication is to communicate the employer’s opinion about religious or political matters.

The law defines “political matters” to mean those matters “relating to elections for political office, political parties, proposals to change legislation, proposals to change regulations, proposals to change public policy, and the decision to join or support any political party or political, civic, community, fraternal, or labor organization.”

“Religious matters” are defined as matters “relating to religious belief, affiliation, and practice and the decision to join or support any religious organization or association.”

The provision also includes civil remedies, allowing aggrieved employees to bring a civil action within 90 days of the alleged violation. Remedies for successful complainants include injunctive relief, reinstatement, back pay and reestablishment of any employee benefits, including seniority any other relief needed to make the employee whole, and reasonable attorney fees and costs.

Similar laws passed or proposed in other states have faced constitutional challenges under the First Amendment and the Supremacy Clause of the Constitution. Given this, it is likely this new law will face legal challenge.

The law goes into effect on August 1, 2023.

Wage Protection for Construction Workers § 181.165

The law also creates new wage protections for construction workers under § 181.165. Under the provision contractors entering into a construction contract are required to assume liability for any unpaid wages, fringe benefits, penalties, and liquidated damages owed to a claimant by a subcontractor at any tier acting under, by, or for the contractor or its subcontractors for the claimant’s labor.

The provision further provides that contractors, subcontractors, and their employees cannot contract around the assumption of liability — any attempts to release or transfer liability assigned to a contractor under the provision are not valid. However, contractors held liable for unpaid costs by subcontractors may then pursue actual and liquidated damages from any subcontractor who caused the contractor to incur the damages.

In addition to contractor liability, the law also provides that within 15 days of a request by a contractor to a subcontractor, subcontractors must provide payroll records, which, at minimum, contain all lawfully required information for all workers providing labor on the project. Additionally, within 15 days of a request by a contractor, subcontractors must provide the following information:

1. The names of all employees and independent contractors of the subcontractor on the project, including the names of all those designated as independent contractors and, when applicable, the name of the contractor's subcontractor with whom the subcontractor is under contract.
2. The anticipated contract start date.
3. The scheduled duration of work.
4. When applicable, local unions with which such subcontractor is a signatory contractor.
5. The name and telephone number of a contact for the subcontractor.

This law goes into effect August 1, 2023.

Other Changes to Minnesota Employment Law

In addition to the above laws, the 276-page bill also includes the following employment-related changes to Minnesota law:

• Amending the Minnesota parental leave law to apply to all employers with one or more employees.
• A new required veterans’ benefits and services poster.
• A new requirement that every licensed health care facility, distribution center or meatpacking site in the state create and implement an effective written ergonomics program (including employee training), establishing the employer’s plan to minimize the risk of its employees developing or aggravating musculoskeletal disorders.
• New notice and recordkeeping requirements related to the employment of migrant workers.
• The creation of a new Minnesota Nursing Home Workforce Standards Board Act, which, among other things, establishes minimum nursing home employment standards.
• The creation of a new Safe Workplaces for Meat and Poultry Processing Workers Act, which, among other things, permits meat-processing workers to refuse to work under dangerous conditions and establishes whistleblower protections.
• Changes to prevailing wage and certain construction contracts.
• Substantial changes to the Public Labor Relations Act, which governs collective bargaining and unionization rights for public sector employers and employees.

Paid Family and Medical Leave, §§ 268B.01-.29

In addition to the Labor Omnibus Bill’s passage, the Minnesota legislature also passed a paid family and medical leave law on May 18, 2023, following a conference committee between the House and Senate.

Under the new law, all Minnesota employers, regardless of size, will be required to provide to almost all employees paid family and medical leave for up to 12 weeks with partial wage replacement related to a serious health condition and up to 12 weeks with partial wage replacement related to leave for pregnancy, bonding, safety, family care, or a military member's active-duty service or impending call to active duty in the United States armed forces, with a total combined cap of 20 weeks per year. The only exceptions for coverage are independent contractors, self-employed individuals, federal government employees and seasonal employees. The amount of weekly benefit is tied to the individual employee’s income level and capped at the state’s average weekly wage ($1,287.00 in 2023).

Similar to paid leave laws in other states, the program will be funded by a 0.7% payroll tax paid by employers and employees. Employers that offer private benefits that meet or exceed the law’s requirements can apply for approval with a related registration fee to opt out of the state plan requirement.

Payment of benefits and the payroll tax will go into effect January 1, 2026.

Recreational Cannabis Bill and Changes to Minnesota’s Drug and Alcohol Testing in the Workplace Act, §§ 181.950-.957

Employers that conduct drug testing on their Minnesota employees should also be aware of changes to the Drug and Alcohol Testing in the Workplace Act (DATWA) that will take effect July 1, 2023, provided that Minnesota’s recreational cannabis bill is signed into law, which is expected to occur sometime this week. The DATWA amendments will generally exclude cannabis from the Act’s definition of a “drug” and create a separate category of “cannabis testing” with more limited permitted testing and discipline scenarios.  For example, under the updated law, employers would be prohibited from conducting pre-employment or random testing for cannabis in most circumstances. However, for certain positions, including safety-sensitive positions, peace officers, firefighters, positions requiring face-to-face care, training, education, supervision, counseling, consultation or medical assistance to children, vulnerable adults, or healthcare patients, positions requiring a commercial driver’s license or subject to federal or state motor vehicle regulations requiring testing, employment positions funded by a federal grant, and positions for which state or federal law requires cannabis testing, cannabis and its metabolites are included under the broader definition of a “drug,” with the result that cannabis testing will be permitted under the same scenarios as for other drugs (and as were historically permitted for cannabis).

Many employers are concerned about the impact of the DATWA changes on their ability to maintain a safe workplace. “Safety-sensitive positions” is defined broadly under the amended law, and are those in which “an impairment caused by drug or, alcohol, or cannabis usage would threaten the health or safety of any person”, including any supervisory or management roles. Additionally, the DATWA amendments make clear that an employer is still permitted to discipline, discharge, or take other action against an employee for cannabis use, impairment, sale or transfer that occurs while the employee is working, on the employer’s premises, or operating the employer’s vehicle, machinery, or equipment, so long as the employer maintains a DATWA-compliant policy that incorporates the new rules regarding cannabis testing and use.

In light of these changes, Minnesota employers that have historically tested for cannabis and its metabolites should consider whether to continue to do so after these changes take effect, and in either case will need to amend their written drug and alcohol testing policies.

As noted above, the changes to DATWA go into effect July 1, 2023.

Unfair Discriminatory Practices Relating to Employment or Unfair Employment Practice § 363A.08 subd. 8

In a separate bill – the Omnibus Judiciary and Public Safety Appropriations Bill – the Minnesota legislature also amended Section 363A.08 by adding a new Subdivision 8 to the current statute. The new subdivision now prohibits employers from inquiring into, considering, or requiring disclosure of an applicant for employment pay history information, from any source, for the purpose of determining wages, salary, earnings, benefits, or other compensation for that applicant.

This added subdivision goes into effect January 1, 2024. For employment covered by collective bargaining agreements, the new subdivision is not effective until the date of implementation of the applicable collective bargaining agreement that is after January 1, 2024.