Death by a thousand cuts, new restrictive covenant laws in Louisiana and Minnesota

The march toward banning the use of noncompetes and other restrictive covenants by a thousand cuts continues…

Recall that earlier this year, Washington expanded its noncompete law to add certain nonsolicits and no-service agreements to the definition of “noncompetition covenant” and to tighten its procedural requirements (effective June 6) and Maryland added limitations and exemptions for physicians, veterinarians, and vet techs (some parts became effective June 1 and others will become effective July 1, 2025).

Well, last month (May 2024), Louisiana and Minnesota took turns limiting different restrictive covenants. (Iowa also tinkered – for the third time in as many years – with its noncompete law, but it did not make a substantive change this time, so I am not summarizing it here.)

Louisiana Limits Physician Noncompetes

Effective January 1, 2025, Louisiana will impose significant limitations on the use of noncompetes for primary care physicians (PCPs) and other physicians.

Primary care physician is defined expansively to mean “a physician who predominantly practices general family medicine, general internal medicine, general pediatrics, general obstetrics, or general gynecology.”

For primary care physicians, noncompetes can be used, but only during the initial three-years of the employment relationship. They cannot be used after that.

The noncompete itself can last no longer than two years and must be limited to the “parish in which the primary care physician’s principal practice is located and no more than two contiguous parishes in which the employer carries on a like business.” Of course, the parishes have to be “specified in the contract or agreement.”

For other types of physicians, the same rules apply, except that noncompetes can be used during the initial five-years of the employment relationship.

The new law has retroactive effect insofar as it will apply not just to new contracts, but to contracts existing on effective date of the new law  (i.e., January 1, 2025). Specifically, existing contracts will (for purposes of the statute’s requirements) be treated as though though their term commenced on the effective date of the new law and the geographic scope will be limited in accordance with the new law.

Here is the language of the new law (everything below the asterisks is new):

Section 1. R.S. 23:921(M), (N), and (O) are hereby enacted to read as follows:

§ 921. Restraint of business prohibited; restraint on forum prohibited; competing business; contracts against engaging in; provisions for

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     M. (1) Any provision in a contract or agreement which restrains a primary care physician from practicing medicine shall not exceed three years from the effective date of the initial contract or agreement. Any subsequent contract or agreement between the employer and primary care physician executed after the initial three-year term shall not include noncompete provisions.

(2) If the contract or agreement provided for in Paragraph (1) of this Subsection is terminated by the primary care physician prior to the initial three-year term, the primary care physician may be prohibited from carrying on or engaging in a business similar to that of the employer in the parish in which the primary care physician’s principal practice is located and no more than two contiguous parishes in which the employer carries on a like business. The parishes shall be specified in the contract or agreement. The prohibition authorized in this Paragraph shall not exceed a period of more than two years from termination of employment.

(3) For purposes of this Subsection, “primary care physician” means a physician who predominantly practices general family medicine, general internal medicine, general pediatrics, general obstetrics, or general gynecology. For any other physician, the provisions of Subsection N of this Section shall apply.

     N. (1) For any physician other than a primary care physician as defined in Subsection M of this Section, any provision in a contract or agreement which restrains the physician from practicing medicine shall not exceed five years from the effective date of the initial contract or agreement. Any subsequent contract or agreement executed between the employer and the physician after the initial five-year term shall not include noncompete provisions.

(2) If the contract or agreement provided for in Paragraph (1) of this Subsection is terminated by the physician prior to the initial five-year term, the physician may be prohibited from carrying on or engaging in a business similar to that of the employer in the parish in which the physician’s principal practice is located and no more than two contiguous parishes in which the employer carries on a like business. The parishes shall be specified in the contract or agreement. The prohibition authorized in this Paragraph shall not exceed a period of more than two years from termination of employment.

     O. (1) The provisions of Subsections M and N of this Section shall not apply to the following physicians:

(a) Any physician who is employed by or under contract with a rural hospital as provided for in the Rural Hospital Preservation Act, R.S. 40:1189.1 et seq.

(b) Any physician who is employed by or under contract with a federally qualified healthcare center as defined in R.S. 40:1183.3 and which operates in a rural parish as designated by the federal Office of Management and Budget at the time the physician is hired.

(2) For any physician exempted in this Subsection, the provisions of Subsections C, J, K, or L of this Section shall apply.

Section 2.

(A) The provisions of this Act shall apply to any contract or agreement entered into on or after the effective date of this Act.

(B) For any contract or agreement in existence as of the effective date of this Act, the initial three- or five-year term provided for in this Act shall commence on the effective date of this Act.

(C) For any contract or agreement in existence as of the effective date of this Act, the geographic provisions provided for in this Act shall be applicable on the effective date of this Act.

Section 3. This Act shall become effective on January 1, 2025.

Minnesota Limits Disintermediation Agreements

Effective July 1, 2024, Minnesota will be limiting disintermediation (no-poach) agreements between “service providers” (i.e., companies acting as “an employer or manager for work contracted or requested by a customer”) and their customers.

Starting July 1, customers are free to hire employees performing work for them through a middleman.

The only exemption is for “workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date.”

The new law has retroactive effect insofar as it will apply not just to new contracts starting July 1, but even to contracts existing as of that date.

And, affected service providers will have to provide notice of the new law to their employees and tell them that their contract violates the new law.

What is Minnesota thinking? Why would staffing companies subject to the law continue to do business in Minnesota?

Here is the language of the new law:

Sec. 53. [181.9881] RESTRICTIVE EMPLOYMENT COVENANTS; VOID IN SERVICE CONTRACTS.

Subdivision 1. Definitions.

(a) “Customer”  means an individual, partnership, association, corporation, business, trust, or group of persons hiring a service provider for services.

(b) “Employee,” as used in this section, means any individual who performs services for a service provider, including independent contractors. “Independent contractor” has the meaning given in section 181.988, subdivision 1, paragraph (d).

(c) “Service provider” means any partnership, association, corporation, business, trust, or group of persons acting directly or indirectly as an employer or manager for work contracted or requested by a customer.

Subd. 2. Restrictive employment covenants; void and unenforceable.

(a) No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider.

(b) Any provision of an existing contract that violates paragraph (a) is void and unenforceable.

(c) When a provision in an existing contract violates this section, the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section.

Subd. 3. Exemptions. This section does not apply to workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date.

EFFECTIVE DATE. This section is effective July 1, 2024, and applies to contracts and agreements entered into on or after that date.

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Additional resources: 

We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):

We hope you find all of these resources useful. More are coming.

And please note that we are grateful for all of the input we’ve received over the years, and welcome any suggestions for improvements that you may be willing to share.

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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills around the country and helping me make sure that all of our resources are current and accurate.