Effective July 1, 2024, the U.S. Department of Labor’s (“DOL’s”) final rule on salary minimums for exempt employees (the “Overtime Rule”) under the Fair Labor Standards Act (“FLSA”) has come into effect.  This rule applies to executive, administrative, professional, outside sales, and certain computer employees, common known as the “EAP” or “white collar” exemptions.  It also includes an increase in the annual compensation threshold for employees classified as “highly compensated.”  Additionally, the rule outlines scheduled increases in salary thresholds, with subsequent adjustments planned for January 1, 2025, July 1, 2027, and every 3 years thereafter.

The limited exception to the Overtime Rule relates to a lawsuit filed by the State of Texas, in which a federal court in Texas has blocked the DOL from enforcing the increased salary thresholds under the Overtime Rule for Texas state employees.  However, the Overtime Rule took effect for all other employers on July 1, 2024.  More details about this lawsuit and other legal challenges to the Overtime Rule are provided below.

The Increased Salary Thresholds

Before July 1, 2024:

Under the previous FLSA overtime rule, employees needed to earn at least $684 per week ($35,568 annually) and fulfill specific job duty criteria to qualify as exempt from FLSA overtime requirements.  Highly compensated employees, on the other hand, had to earn at least $107,432 annually, including a weekly salary of $684, along with other minimum job duty requirements, to be classified as such.

As of July 1, 2024:

The Overtime Rule raises the minimum salary threshold for exemption to $844 per week ($43,888 annually) and maintains the same job duty requirements for exemption status.  It also increases the minimum annual compensation threshold for highly compensated employees to $132,964 annually, including a weekly salary of $844, and maintains the additional job duty criteria.

As of January 1, 2025:

The Overtime Rule further increases the minimum salary threshold for exempt employees to $1,128 per week ($58,656 annually) for white collar exemptions, and sets the minimum annual compensation for highly compensated employees at $151,164, including a weekly salary of at least $1,128.  Starting January 1, 2025, the methodology for determining these thresholds shifts from using the 20th percentile of weekly earnings in the lowest U.S. wage region, the South, to the 35th percentile, updated with current wage data.

As of July 1, 2027 (and every 3 years thereafter):

The standard salary thresholds for FLSA overtime exemptions will be recalculated using the updated methodology tied to the 35th percentile of weekly earnings in the lowest U.S. wage region, based on current wage data.  Threshold increases will occur every 3 years thereafter.

Other Exemption Classification Requirements

In addition to meeting the applicable salary thresholds discussed above, employees must satisfy other criteria to qualify as exempt under the FLSA, including:

1. Receiving a “salary,” defined as a fixed and predetermined amount that isn’t subject to reductions based on the quantity or quality of work performed. This may also apply to hourly employees in certain cases;
2. Being paid at least a specified weekly salary; and
3. Primarily engaging in executive, administrative, professional, outside sales, or computer-related duties as outlined in the DOL’s regulations.  More details on these duties can be found here: DOL’s Fact Sheet on Overtime Exemptions.

To comply with the FLSA, highly compensated employees must be salaried (as defined above), earn more than the applicable annual compensation threshold, and regularly perform at least one duty or responsibility of those meeting white collar exemption standards.  Additional information about requirements for the “highly compensated” employee classification can be found here: DOL’s Fact Sheet on Highly Compensated Employees.

Consequences of Misclassification

While the Overtime Rule itself does not alter penalties for misclassifying exempt employees, the FLSA imposes significant financial repercussions for such errors.  Employers found to have misclassified employees as exempt may be liable for all unpaid overtime owed to the employee for up to 3 years prior to the employee’s claim.  Additionally, courts have the authority to impose liquidated damages equivalent to the total unpaid overtime, effectively doubling the amount owed to the misclassified employee by the employer.  Furthermore, employers who willfully or repeatedly misclassify employees as exempt may face civil penalties of up to $1,000 per violation, and in severe cases, criminal prosecution.  Employers should also be aware of potential state-imposed penalties if misclassification violates state or local wage and hour laws.

Additionally, it’s crucial for employers to consider the impact of the Overtime Rule on classification status concerning the enforceability of restrictive covenants in states where exemption status is a prerequisite.  For instance, in Rhode Island and Massachusetts, compliance with FLSA overtime requirements may determine whether certain post-termination restrictive covenants are enforceable.

Limitation of the Overtime Rule Against the State of Texas and Other Legal Challenges

On June 28, 2024, the final business day before the Overtime Rule took effect on July 1, a Texas federal judge issued a preliminary injunction that delays the rule’s implementation specifically for Texas state employees.  This decision, made in the case of State of Texas v. U.S. Department of Labor, suggests that the judge believes Texas is likely to succeed in arguing that the DOL exceeded its statutory authority by focusing on compensation rather than job duties in determining overtime classification under the FLSA.

The court’s rationale in State of Texas indicates that the DOL’s adjustment to the minimum salary thresholds for exemption contradicts the clear text of the FLSA’s EAP exemption, which emphasizes that employers should primarily base overtime classification on an employee’s job, rather than focusing on the employee’s compensation.  This injunction applies only to Texas state employees, while all other employers must now comply with the new salary thresholds outlined in the Overtime Rule.  However, the outcome of the State of Texas case may set a precedent for similar challenges to the Overtime Rule.  The judge highlighted the potential impact on other pending cases and indicated his decision might shape future interpretations of the rule’s legality.

In another case before a Texas federal court, Flint Ave., LLC v. U.S. Department of Labor, a software company seeks a nationwide injunction against the Overtime Rule, similarly arguing that the DOL’s adjustment of the salary level test exceeds the DOL’s statutory authority.   According to the employer’s brief supporting its motion for injunctive relief, “[the] DOL has usurped Congress’s prerogative to establish overtime wages by unilaterally grafting the salary level test” to the FLSA.  Additionally, a case currently under consideration by the Fifth Circuit questions the DOL’s authority to establish any minimum salary requirements for overtime exemptions.  This case predates the announcement of the Overtime Rule but could significantly impact its enforcement, depending on the Fifth Circuit’s ruling.

Next Steps for Employers

Employers are strongly encouraged to prepare for the impacts of the Overtime Rule and ensure compliance immediately.  Here are recommended steps:

1. Review current employee classifications and compensation data to identify those who may need reclassification based on the updated salary thresholds.  This is also an opportunity to correct any inadvertent misclassifications.
2. Evaluate compliance strategies, such as considering reclassification, adjusting compensation, or redistributing exempt duties, based on the review of employee classifications.
3. Develop communication plans to inform affected employees about changes to their employment status.
4. Ensure newly classified non-exempt employees have the necessary timekeeping resources if they previously did not track their time.
5. Seek guidance from our Employment group regarding employee classification, compliance strategies, or any other FLSA-related concerns.

Winthrop & Weinstine’s Employment group is actively monitoring ongoing litigation related to the Overtime Rule and will provide timely updates as new information emerges.  As always, our attorneys are available to assist your business in navigating these complex regulatory changes effectively, so please do not hesitate to contact a member of our Employment group regarding any questions or concerns regarding the Overtime Rule or FLSA compliance.

The 2024 legislative session saw the Minnesota Legislature make a number of sweeping changes and clarifications to the State’s one-year-old cannabis statute.  And in recent days, the Office of Cannabis Management (OCM) added some additional details and clarity every aspiring cannabis entrepreneur should note.

In May, the Legislature defined the process applicants will need to go through to obtain a cannabis business license. It also set limits on the number of licenses OCM may award between now and July 1, 2026 for certain categories of operations.  Specifically, OCM may issue licenses to up to 25 cultivators, 12 manufacturers, 75 retailers, and 50 mezzobusiness operators who qualify as “social equity applicants.”  Once social-equity licenses are awarded, OCM may grant up to that same number of additional licenses to the population at-large (including social-equity applicants who were not awarded licenses in the social-equity round).

In recent days, OCM released additional information, adding a sense of urgency to the application process.  Specifically, OCM will open an online portal where prospective applicants may submit information to verify whether they qualify for social-equity status.  That online process will be open from June 24 through July 10 at 11:59 p.m.  Those who receive verification of their social-equity status will be eligible to apply for one of the social-equity licenses described above.  An application portal for qualified social-equity applicants will then be open from July 24 through August 12 at 11:59 p.m.

The last twelve months have been a period of “hurry up and wait” for many Minnesotans interested in starting a cannabis enterprise.  If you are interested in being part Minnesota’s legal cannabis market, the wait is now over.  Let one of our experienced cannabis lawyers help you navigate the process.

Several new and revised statutes passed by the Minnesota Legislature significantly impact the rights and responsibilities of employers. Understanding these changes is important in helping employers minimize the risk of litigation and better handle any employment litigation that does occur. These statutory changes affect the following areas: (1) pre-employment drug testing; (2) salary postings; (3) restrictive employment covenants; (4) access to personnel files; (5) sick and safe time; (6) paid family and medical leave; (7) independent contractor misclassification; (8) pregnancy accommodations; and (9) employees’ rights posters.

Question: Are there any notable changes to pre-employment drug testing methods?

Answer: For otherwise permissible pre-employment drug testing, employers may now use “oral fluid drug testing” for drug, alcohol, and cannabis use. This amendment to the Drug and Alcohol Testing in the Workplace Act becomes effective August 1, 2024. Oral fluid drug testing relies on saliva to provide an accurate and rapid response, rather than expensive and time-consuming laboratory testing at pre-approved labs. At the time of testing, employers must immediately inform the applicant of the test results. If the fluid test result is positive, inconclusive or invalid, the applicant has 48 hours to request testing at an approved testing laboratory, paid for by the employer. An applicant can request subsequent re-tests, but any additional tests must be paid by the applicant.

Question: Are Minnesota employers now required to post salary ranges?

Answer: Yes. Starting January 1, 2025, Minnesota employers, both public and private, with 30 or more employees, must include a “good faith estimate” of the salary range for any job posting, whether the posting is printed or electronic. “Salary range” is defined as the minimum or maximum salary or hourly range of compensation for a job at the time of posting. Beyond monetary compensation, the employer must also include “a general description of all of the benefits and other compensation” the applicant would receive, including all health and retirement benefits. Where an employer does not intend to offer a salary range, a fixed pay rate may be listed instead.

Question: Are service providers permitted to continue to use restrictive employment covenants?

Answer: No. Starting July 1, 2024, service providers can no longer limit customers from directly or indirectly hiring or soliciting their employees in any way. If a service provider held restrictive covenants before July 1, 2024, it must inform its employees that the contract provisions are void and unenforceable. Exempt from this law are workers who provide business consulting through service providers to customers in the computer software development field and intend to receive a permanent job with the customer in the future.

Question: Are all private employers now required to provide employees and former employees access to personnel records?

Answer: Yes. Previously, only private employers with 20 or more employees were required to provide access to personnel records, but now all private employers must provide access if the request is made in good faith. Existing restrictions and protections for personnel records still apply, as set forth in Minnesota Statutes sections 181.960 -181.966.

Question: What changes did the Legislature make to Minnesota’s Sick and Safe Time law?

Answer: Initially passed last year, Minnesota’s new Sick and Safe Time law was amended this year to provide additional protections for workers. Effective immediately, employers who fail to sufficiently provide or allow use of sick and safe time to employees are liable for the time the employees should have been provided, as well as liquidated damages in an equal amount. Employers that keep insufficient records for accurate sick and safe time calculations are also now liable for 48 hours of such time and an equal amount of in liquated damages. The changes also add additional reasons for which an employee can use sick and safe time, namely, making funeral arrangements and addressing financial or legal matters regarding the death of a family member. In a win for employers, they are no longer required to specify sick and safe time on pay statements; instead, employers can “choose a reasonable system” for providing this information. Records must be kept for three years, and sick and safe time usage may now be tracked in increments ranging between fifteen minutes and four hours.

Question: What are the revisions to the Minnesota Paid Family and Medical Leave law?

Answer: The Paid Family and Medical Leave law was amended to make various technical, clarifying, and substantive changes to paid family and medical leave benefits under Chapter 268B. The most significant change is an increase in the payroll tax from 0.77% to 0.88% beginning January 1, 2026. Additionally, the amended law allows employers with 30 or fewer employees to pay lower premium rates if the employer’s average wage is not more than 1.5 times the state’s average wage. Premium rates for employers falling under this threshold are reduced by 25%. These reduced premiums are then further divided into employer and employee portions. Employers must pay at least 25% of the premium and cannot deduct it from employee’s pay. The employee must pay the remaining premium via employer-made wage deductions.

Question: Are there now harsher penalties on employers for misclassifying employees?

Answer: Yes. Effective July 1, 2024, officers or agents responsible for independent contractor misclassifications can be held personally liable for violations of applicable law. Compensatory damages may be available to misclassified workers, plus additional penalties of up to $10,000 for each violation and up to $1,000 for each act of obstruction into misclassification investigations. Moreover, Minnesota Statute, Section 181.723, which formerly provided a separate independent contractor definition for “contractors,” was modified to be applicable for all “construction employees.” Employers in the construction industry must carefully review the new requirements of Section 181.723 to ensure they remain compliant with worker classifications.

Question: What change was made to Minnesota’s Pregnancy Accommodation law?

Answer: When an employee is on leave for an accommodation related to pregnancy, childbirth or related health conditions, employers are required to maintain insurance coverage. This includes coverage under a group insurance policy, group subscriber contract, or health care plan for the employee and any dependents, so long as the employee pays their share of the benefits’ cost.

Question: Is there a new employees’ rights poster required for employers to display at work?

Answer: Yes. The legislature directed the Department of Labor and Industry to create an educational poster providing notice of employees’ rights regarding employer-sponsored meetings or communications on the employer’s opinion about religious or political matters. When available, the notice must be posted in English and the five most common languages spoken in Minnesota.

For more information about these updates and their applicability to you or your business, or if you have questions about your employment policies and documents in light of these changes, please reach out to any member of our Employment team.

A new Minnesota law came into effect on April 27, 2024, which flags the importance of addressing insurance coverage within your estate plan, especially if your plan utilizes transfer on death deeds. A transfer on death deed (“TODD”) is a conveyance instrument by which a property owner may provide for his or her interest in real property to be transferred to a certain individual or entity (a “grantee beneficiary”) upon the property owner’s death.

WHAT HAPPENED: THE CASE

The new law results from the facts of a 2019 federal court case, Strope-Robinson v. State Farm Fire and Casualty Company:[1]

• A property owner executed and recorded a TODD to transfer his house to his niece.
• Shortly thereafter, the property owner passed away, and just six days after his death, the property owner’s ex-spouse intentionally set fire to the home.
• As the grantee beneficiary of the TODD, the niece took ownership of the property upon her uncle’s death and filed a claim with his homeowner’s insurance provider for the fire damage.
• The insurer denied the claim for any damage to the real property because the niece was not the named insured under the policy.

The Court ultimately found that, because the insurer had no contractual relationship with the niece as the owner of the property, and the uncle’s estate no longer had an insurable interest in the property at the time of the fire, the insurer was not required to cover the property damage.

WHAT’S NEXT: A WARNING REGARDING COVERAGE

This case exposed a contractual and legal loophole in property insurance coverage that the Minnesota Legislature sought to close with this new law. Minnesota Statutes Section 507.071 subd. 2 now clarifies that:

“Until a transfer on death deed becomes effective, it has no effect on title to the real property … but it does create an insurable interest in the real property in favor of the designated grantee beneficiary for purposes of insuring the real property against loss or damage that occurs on or after the transfer on death deed becomes effective.”

To ensure property owners are aware of this insurable interest, all TODDs executed on or after August 1 must contain a new warning to property owners and their grantee beneficiaries:

“Warning to Grantor Owner: Temporary extended coverage of any fire and casualty insurance policy on the property under Minnesota Statutes, chapter 65A, will exist only if the grantor owner has given notice to the insurer under Minnesota Statutes, section 507.072, subdivision 3, including the existence of a transfer on death deed and the names and contact information of all designated grantee beneficiaries. Any temporary extended coverage terminates on the earlier of (1) 30 days after the date of the grantor owner’s death, (2) the expiration date of the policy, or (3) upon placement of a replacement insurance policy.

 Warning to Grantee Beneficiary: A grantee beneficiary shall not presume insurance coverage continues after the death of the grantor owner. Upon the death of the grantor owner, the grantee beneficiary should determine whether the provisions of Minnesota Statutes, section 507.072, apply and consult with an insurance agent or attorney.”

WHAT TO DO: PROVIDE NOTICE TO INSURERS

Finally, to avoid a future situation like the arson case, the new law requires insurers to provide thirty (30) days of temporary extended coverage on the real property in favor of the grantee beneficiary after the death of the property owner who granted the TODD, or after expiration of the property owner’s existing insurance policy, whichever is sooner.

However, this coverage is only applicable if the property owner notifies the insurer of the existence of the TODD and the names and contact information for the grantee beneficiary.

To pay a claim pursuant to such coverage, an insurer may also require proof that:

• the claimant is the grantee beneficiary under a TODD from the property owner;
• the TODD was recorded as required by law; and
• an Affidavit of Survivorship and Certificate of Death for the deceased property owner was recorded as required by law, to establish that the grantee beneficiary is the current owner of the property.

Therefore, providing notice to your property insurance provider(s), and your grantee beneficiaries, of TODDs within your estate plan is a new and crucial step in the estate planning process for those who wish to pass real property to their loved ones using this type of conveyance instrument. We recommend reviewing your estate plan documents and contacting your insurance agent to provide notice of any TODDs.

Specifically, if you have executed a TODD for estate planning purposes, you may have named a revocable trust as the grantee beneficiary under the TODD.  Your insurance company may be able to add each revocable trust named on the TODD as an additional insured on your insurance policy, so that coverage would continue to extend to the trust in the event the property ultimately passes under the TODD upon the death of the grantor(s).  This ensures that coverage for a trust extends beyond the thirty (30) days granted under the new law.  Please review your TODD and contact your insurance agent to determine what updates may be necessary to your insurance coverage.

FOR MORE INFORMATION:

If you have additional questions, please feel free to reach out to any member of our Estate Planning or Real Estate teams below.

[1] Strope-Robinson v. State Farm Fire & Cas. Co., 429 F. Supp. 3d 634 (D. Minn. 2019), aff’d, 844 F. App’x 929 (8th Cir. 2021)

On May 24, 2024, Governor Walz signed into law the Minnesota Consumer Data Privacy Act (MNCDPA). This landmark law is the first set of comprehensive consumer privacy standards specific to Minnesota residents. The law will take effect on July 31, 2025, for most covered entities.

Who Must comply with the MNCDPA?

The law applies to entities that control or process personal data from a significant number of Minnesota residents, or that derive a significant amount of their gross revenue from the sale of personal data. Specifically, it applies to entities that (1) control or process personal data of at least 100,000 Minnesota residents during a year or, (2) derive over 25% of their gross revenue from selling personal data and process or control personal data of at least 25,000 Minnesota residents. These threshold limits are similar to those in many of the other states that have enacted comprehensive consumer data privacy laws.

The MNCDPA also contains several exclusions. For example, small businesses, as defined by the U.S. Small Business Administration, are largely exempt from the MNCDPA, but they must still obtain prior consent before selling any individual’s sensitive data. Certain categories of entities are also excluded from the law’s scope, such as government entities, federally recognized American Indian tribes, state or federally chartered banks, and airlines. In addition, the law also includes the usual data-level exemptions for data processed under certain federal laws, such as protected health information under HIPAA and personal data processed pursuant to the Gramm-Leach-Bliley Act.

What is required by the MNCDPA?

Minnesota provides an expansive list of individual consumer privacy rights and additional requirements that must be enacted by impacted businesses. Like many states, the MNCDPA gives individuals the right to personal data access, correction, deletion, and data portability. Individuals can also opt-out of the sale of their personal data and the processing of their personal data for targeted advertising. Companies that have already complied with existing omnibus state privacy laws like the CCPA will recognize many of these rights.

However, in a first for a comprehensive state privacy law, the MNCDPA not only grants individuals the right to opt-out of profiling used to make decisions that have legal or similar significant impact on consumers, but also grants a variety of additional rights. This includes the right to contest the results of any profiling, as well as the right to know which actions they could have taken to secure a different outcome. There is also a right to review the personal data used in the profiling, to correct any inaccurate data, and then to get the decision reevaluated. This is a unique requirement that could have a significant impact on businesses using artificial intelligence or non-AI algorithms to make automated decisions that impact individuals, such housing determinations, educational enrollment, and access to essential goods and services.

The MNCDPA introduces several unique privacy program requirements, definitions, and documentation. For example, data privacy and protection assessments (DPPAs) must be conducted for high-risk processing activities, including targeted advertising, selling personal data, processing sensitive data, and any processing with heightened risk of harm. Unlike other states, Minnesota’s DPPAs must detail the type of data, its sensitivity, and the context of processing, alongside describing necessary policies and procedures. The law also prohibits discrimination against consumers based on various personal data attributes in areas such as housing, employment, and public accommodations. Notably, the MNCDPA also takes a unique approach to location data, and defines “specific geolocation data” using precise latitude and longitude measurements rather than the more typical approach a radius in feet, setting it apart from other states and possibly requiring businesses to revisit their approach to geolocation data.

Finally and unsurprisingly, the MNCDPA requires covered entities to have a “reasonably accessible, clear, and meaningful privacy notice.”  The privacy notice must include, among other things, the purposes for which consumer data is processed, a description of retention policies for personal data, and the categories of data and third parties to whom that data is sold or shared. Fortunately, the MNCDPA does not require an independent Minnesota-specific privacy section, so long as the privacy policy itself meets the content requirements of the law.

How will the MNCDPA be enforced?

The Minnesota Attorney General’s Office will exclusively enforce the MNCDPA, with civil penalties available up to $7,500 per violation. Before January 31, 2026, enforcement must begin with an attorney general warning letter and a 30-day cure period, but any later violations will not be afforded the same opportunity to cure any alleged violations.

Given the complexities of the MNCDPA, we anticipate many organizations will have questions about the Act’s applicability, how to comply, and what steps can be implemented now to stay ahead of the July 31, 2025, effective date. For questions about the MNCPDA and how it may apply or affect your business, reach out to Nadeem Schwen or Lisa Ellingson, co-chairs of our Data Privacy team.

Following last year’s significant changes to Minnesota’s lobbyist regulations, Governor Tim Walz has signed two bills that further amend these provisions. The Elections Omnibus bill, H.F. 4772 (MN Session Laws 2024, Chapter 112), was passed first and sought to provide some clarifications, while an additional provision was added to the Omnibus Tax and Supplemental Budget bill, H.F. 5247 (MN Session Laws 2024, Chapter 127), in the waning hours of session to address certain individuals who provide professional expertise but may be newly classified as lobbyists. Below is a brief summary of the latest round of changes.

New Registration Requirements Stayed Until June 2025

Prior to passage of last year’s lobbyist registration changes, those who lobbied metropolitan governmental units were already subject to registration and reporting requirements. Those requirements remain in place at this time. However, individuals who are newly subject to lobbyist registration and reporting due to the expansion of regulations to all political subdivisions do not have to register until June 1, 2025.

Study of Lobbyist Laws Authorized

The Campaign Finance and Public Disclosure Board (CFB) has been tasked to “study and make recommendations to the legislature on the definitions of ‘lobbyist,’ ‘local official,’ ‘public official,’ and ‘official action of a political subdivision’ for purposes” of lobbying registration and reporting requirements. The study must be completed and submitted to the Legislature by January 15, 2025, allowing the legislature time to act on the recommendations prior to the registration requirements taking effect on June 1, 2025.

Are Professional Experts, including CEOs, Lobbyists?

One topic most in need of clarity following the 2023 changes was the role of professional experts who offer information to elected officials at the request of a lobbyist. Both the House and Senate included a provision that excluded individuals providing such expertise from the definition of a lobbyist, but that provision was removed at the last minute. The removal followed a discussion among members of the conference committee regarding the issue, including whether CEOs would fall under this exclusion. The conferees were conflicted about excluding CEOs and expressed a desire to have the CFB examine the issue during the study.

Lobbyists and Contingent Fees

Minnesota law has long prohibited lobbyists from being paid on a contingent fee basis, in other words, only getting paid if they have legislative success. However, one of the concerns with the expanded local lobbying regulations is that certain individuals who have long been paid on a contingent fee basis and have never been considered lobbyists, may now be classified as lobbyists under the 2023 changes. While the legislature examines this predicament over the next several months, a provision was included in H.F. 5247 that states:

Not withstanding any law to the contrary, an attorney or financial advisor participating in conduit financing through a local unit of government may be paid on a contingent fee basis.

This section expires on June 1, 2025, presumably following further clarification in law.

It is clear that the Legislature will again revisit the issue of local lobbyist registration and reporting requirements in 2025. In the meantime, please let us know if you have any questions.

Important Reminder

Lobbyist reports are due on Monday, June 17, covering the period from January 1, 2024 – May 31, 2024. As a reminder, these reports will contain different information than was required on previous reports. Once the new forms are available, please let us know if you have any questions.

Time’s Almost Up

As the House and Senate work towards the May 20 adjournment date, the Legislature is rapidly running out of time. With the conclusion of the House and Senate floor sessions on Thursday, May 9, only five legislative days remain to complete their work. It is unusual at this time of year for the Legislature to have more calendar days remaining to complete their work, 10, than legislative days, 5. It’s also worth a reminder that the Legislature cannot pass bills on the final day of session. Total days available, including the last day of session, are 11 (calendar) and 6 (legislative). Most anticipate that the Legislature will use all the calendar and legislative days available.

Capital Investment Bill Marches Forward

The House Capital Investment Bill, H.F. 5220, passed the Ways and Means Committee on Wednesday on a party-line vote. The bill contains $898 million in general obligation bonds for projects primarily related to asset preservation for higher education, natural resources, transportation, and public safety along with other state capital needs. Since capital investment bills must originate in the House, the Senate capital investment bill, S.F. 5251, was heard and laid over in the Senate Capital Investment Committee last week. Both bills contain a placeholder for approximately $300 million that will be allocated to local projects prior to the bill’s passage.

Republicans Vow to Vote Against Capital Investment Bill

Because the Minnesota Constitution requires capital investment bills to be passed by three-fifths of all elected members, 81 House members are needed to pass the bill. With a 70-64 partisan split in the House, the majority DFLer’s need 11 Republicans to vote for a bonding bill. In Ways and Means, Representative Pat Garofalo (R-Lakeville) announced that all House Republicans would vote against the bill. Presumably, Republicans are withholding their votes on capital investment to gain leverage on other issues. As one long-time capitol insider said this week, “Republicans will say they won’t vote for a bonding bill…until they do.”

Odds on Sports Betting

One of the most-hyped bills heading into the legislative session is still limping towards the finish line. A bill to authorize and regulate sports wagering, H.F. 2000/S.F. 1949, is waiting to be heard in the House Ways and Means Committee and the Senate Finance Committee. House Speaker Melissa Hortman (DFL-Brooklyn Park) said on Thursday that she felt that a sports betting bill had a 60 percent chance of passing in the last week of session. Senate passage remains much murkier as the body continues to be bogged down in partisanship surrounding Senator Nicole Mitchell (DFL-Woodbury).

Turning Up the Heat

While temperatures have been rising outside (and Minnesotans have been universally loving it!), temperatures also continue to rise in the Minnesota Senate. Earlier this week, the Senate Rules and Administration Subcommittee on Ethical Conduct met to discuss a complaint that had been filed against Sen. Nicole Mitchell following her arrest and charging of first-degree burglary (video/audio available here: Subcommittee on Ethical Conduct, 5.7.24) The committee consists of two Republican and two DFL members. Following a significant discussion, including the presentation of various information that has been provided to the public regarding the situation, Sen. Mitchell’s attorney pleaded the fifth on behalf of his client in answer to almost every question posed. After several deadlocked votes, the committee members went into executive session, eventually returning and agreeing to meet again on June 12, two days after Sen. Mitchell’s next court date.

Uncertainty Remains at Capitol

The Senate avoided the passage of controversial bills again this week in the wake of the arrest of DFL Senator Nicole Mitchell on first degree burglary charges. After being absent last week, Senator Mitchell returned to the Senate Floor this week for the first time since her arrest. In response, Senate Republicans attempted various motions designed to prevent her from voting. With Senator Mitchell voting, the DFL Majority rejected these motions on a party-line 34-33 vote, citing Mitchell’s right to due process in the Senate Ethics Committee. The Senate Ethics Committee will hear an ethics complaint against Mitchell on May 7.

Late Senator David Tomassoni Honored

The House and Senate passed a bill this week renaming a portion of Highway 169 in honor of the late Senator David Tomassoni, who served the Iron Range in the state legislature for nearly two decades until his passing in 2022. Governor Walz signed the bill into law on Wednesday with Senator Tomassoni’s family present.

House Passes Transportation, Labor, and Housing Bill

The House made progress on passing supplemental budget bills this week. H.F. 5242, which contains the supplemental budget bills for transportation, labor and housing, passed the House by a 69-60 vote. The Senate is expected to address the bill next week.

House Debates Gun Legislation

The House devoted a significant amount of floor time this week to gun legislation. On party-line votes, with DFLers voting in favor and Republicans voting no, the House passed bills to: 1) require lost or stolen guns to be reported to law enforcement; and 2) to expand firearm storage requirements. These bills face an uncertain future in the Senate.

Home Stretch

The 2024 Legislative Session is entering the home stretch, with just two full weeks remaining until the mandated adjournment date of May 20. With just 9 official legislative days remaining (and only 8 when bills can be passed) and numerous supplemental budget bills still needing to pass both bodies, it is expected that the House and Senate will be spending some long days on their respective floors in the next two weeks.

Does the Trifecta Still Exist?

In the wee hours of Monday morning, freshman Senator Nicole Mitchell (DFL-Woodbury) was arrested for first-degree burglary. As details have trickled out throughout the week, providing a constant stream of gossip and speculation, the key question is whether she will ever return to the legislature. The Senate met twice this week, but Sen. Mitchell was not present, either in person or virtually. The Senate DFL Party has had a tenuous 34-33 majority, and without Sen. Mitchell’s vote, the Senate is currently at a stand still to pass anything but non-controversial motions. At this time, not only is it unclear how the legislative session will end, but it is unclear whether the Democrats still have a Senate majority.

Time is Running Short

Only three weeks remain before the May 20th Legislative adjournment date. The Senate had planned to pass about a half dozen bills off the floor this week, but those plans were dashed due to Sen. Mitchell’s absence. While the House is continuing to advance legislation as planned, both the House and Senate were down to a tight time schedule to pass, conferee and repass more than a dozen omnibus bills. With the loss of any real action in the Senate this week, that timeline is quickly shrinking.

Legislative Days are Running Even Shorter

Typically, a solution to the short three-week timeframe would be to simply meet over the weekend. However, as we had mentioned earlier in the legislative session, last year the Legislature used up far more legislative days (any day either the House or Senate meets on the floor) than normal. After today, only 14 legislative days remain.

Number One Priority Yet to Come

In addition to the various omnibus bills that are queued up, the Legislature’s stated number one priority for the session—a capital investment bill—is still in the works. The House has announced that it will release its list of proposed projects on Sunday, and that it intends to pass the bill out of committee by mid-week. The Senate has yet to release its recommendations. Requiring a super-majority to pass off the floor, the capital investment bill was expected to be the crowning achievement of this session, but its fate remains as uncertain as everything else.

Impact on 2024 Elections

As legislative leaders continue discussions for how to end this session, what will be left unsaid is the expected impact on the 2024 election cycle, which could be substantial. The entire Minnesota House of Representatives will be up for election, and many Republicans have been feeling upbeat about their prospects of taking over the majority. Additionally, Senator Kelly Morrison (DFL-Deephaven) is expected to win an open Congressional seat, leaving her seat open in a likely special election. Add the possibility of an election to replace Senator Mitchell, and there are suddenly a lot of opportunities for Republicans to end the current DFL trifecta over state government.

Over a year after it proposed a rule banning virtually all non-compete agreements, the Federal Trade Commission (“FTC”) voted to issue its long-awaited final rule.  The final rule is substantially the same as the proposed rule, with a new exception for “senior executive” agreements that were in place before the final rule’s effective date.  The rule’s effective date could be delayed by the lawsuits just filed by the United States Chamber of Commerce and other trade groups, which challenge the authority of the FTC to regulate issues of such vast economic and political significance.

Employers currently using non-compete agreements should consider making a plan for compliance if the final rule goes into effect.  These questions and answers below are applicable to entities subject to the FTC Act (the FTC Act does not apply to many nonprofit corporations[1], banks, savings and loan institutions, federal credit unions, or common carriers, among others).

What are the key elements of the final rule?

• The final rule bans new post-employment non-competes with all workers (including independent contractors) after the final rule’s effective date.  Specifically, the final rule provides that it is an unfair method of competition—and therefore a violation of the FTC Act—for employers to enter into non-competes with workers after the effective date.
• Existing post-employment non-competes with workers other than senior executives are not enforceable after the effective date of the final rule. The final rule makes it an unfair method of competition to enforce or attempt to enforce a non-compete clause, or to represent that a worker (except for a senior executive) is subject to a non-compete clause after the effective date.
• For senior executives, existing non-competes can remain in force.
• Before the effective date, employers must give notice to current and former employees that existing non-competes are no longer enforceable.
• There is a limited exception allowing new non-competes in certain “sale-of-business” agreements.

When does the final rule go into effect?

The final rule goes into effect 120 days from the date of publication in the Federal Register.  The current expected effective day is late August or early September, 2024, subject to any delays caused by litigation.

What is considered a “non-compete clause”?

Prohibited non-compete clauses are any term or condition of employment (including contracts and employer policies or handbooks, whether written or oral) that prohibit a worker from, penalize a worker for, or function to prevent a worker from seeking or accepting other work after the conclusion of employment.  Also prohibited are clauses that would prohibit, penalize, or function to prevent a worker from starting their own business after they leave employment.

Importantly, the rule does not prohibit employers from limiting employees from competing during employment.  The final rule also does not apply to non-competes if they restrict only work outside the U.S. or starting a business outside the U.S.

The FTC declined to carve out an exception for “forfeiture-for-competition” clauses, which are often a component of deferred compensation arrangements for executives.  These types of clauses will likely be considered prohibited non-compete clauses under the final rule.

What about confidentiality or non-solicitation agreements?

Well-drafted confidentiality, non-disclosure, and non-solicitation agreements are permissible under the final rule as long as they are not so broad that they would functionally prevent a worker from working for another employer in the same field. Under the FTC’s explanation, an agreement in which the worker agrees not to disclose certain confidential information to a competitor would not prevent a worker from seeking work with a competitor or accepting such work after a worker leaves their job.

Similarly, a non-solicitation agreement that restricts who a worker may contact after leaving a job, but does not prevent a worker from seeking or accepting other work or starting a business is not a prohibited non-compete clause.  Whether a non-solicitation agreement rises to the level of a non-compete, however, is a fact-specific inquiry.

Who is considered a “senior executive”?

In general, the term “senior executives” refers to workers earning at least $151,164 per year AND who are in a “policy-making position.”  A “policy-making position” is defined as:

• An entity’s president, chief executive officer or the equivalent.  These positions are automatically considered “senior executives” if they meet the compensation threshold.  Employers do not need to consider the further element of “policy-making authority”;
• Any other “officer” of a business who has “policy-making authority”;
  • “Officer” includes a vice president, secretary, treasurer, or principal financial officer, comptroller or principal accounting officer and other person routinely performing corresponding functions.
  • “Policy-making authority” means final authority to make policy decisions that control significant aspects of a business entity or common enterprise.

The FTC believes fewer than 1% of workers are estimated to be senior executives under the final rule’s definition, which the FTC meant to include only workers likely to have “bespoke, negotiated agreements—those with the highest level of authority over the organization.”

In its explanation of the final rule, the FTC noted that “C-suite” executives will likely be senior executives.  The FTC also explained that partners in a business, such as physician partners of an independent physician practice, would also generally qualify as senior executives under the duties prong, and would also likely fall under the sale of business exception if the partner leaves the practice and sells their shares of the practice.

Important to note is that having final authority to make policy decisions for only a subsidiary of or affiliate of a common enterprise is not considered “policy-making authority.”  The FTC gave the example of a business operating in several states with its operations in each state organized as their own corporation. Assuming these businesses and the parent company are considered a common enterprise, the head of each state corporation would not be a “senior executive.” Rather, only the senior executives of the parent company (or whichever company is making policy decisions for the common enterprise) would qualify.

Are there any other exceptions?

Yes, non-competes entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets are not considered unfair competition. The proposed rule required the seller to hold at least a 25% ownership interest in the business entity, but this was not incorporated into the final rule.

The final rule only applies to non-competes between businesses and workers. Although the FTC sought comment on franchisor/franchisee relationships, the final rule does not apply to non-competes in franchisor/franchisee contracts (however, these are still subject to other antitrust laws).

Notably, causes of action that accrued prior to the effective date are excepted from the final rule. The FTC’s guidance states that it adopted this exception “to be clear that the final rule does not render any existing non-competes unenforceable or invalid from the date of their origin. Instead, it is an unfair method of competition to enforce certain non-competes beginning on the effective date.” Thus, if the final rule goes into effect, non-competes may still be enforced where the cause of action accrued prior to the rule’s effective date.

Finally, it is not an unfair method of competition to enforce or attempt to enforce a non-compete clause or to make representations about a non-compete clause where a person has a good-faith basis to believe that the ban is inapplicable.

What type of notice do employers need to provide under the rule?

Prior to the effective date of the final rule, employers will need to provide notice to each worker who is subject to a non-compete in violation of the rule. The notice must identify the person who entered into the non-compete clause with the worker and be provided via mail, hand delivery, email or text message to the worker. The FTC has issued a model form of notice in various languages.  If an employer has no record of a street address, email address, or mobile telephone number for a worker, the employer is exempt from the required notice provision for that worker.

What about state non-compete laws?

State laws are not preempted if they do not conflict with the final rule, and states may continue to enforce laws that restrict non-competes if the scope of the state restrictions is narrower than the final rule.

What should employers do now?

Do not immediately send out notices to workers that their non-competes are unenforceable.  There is a strong chance that the final rule’s implementation will be enjoined by a court before its scheduled effective date, so keep abreast of the status of litigation challenging the final rule. However, it may be wise to prepare to send notices in case the rule goes into effect. This includes determining which past and current workers are subject to a non-compete that would be in violation of the final rule, and determining whether the business maintains contact information for these workers. Some businesses may also determine that it has “senior executives” not subject to a non-compete that should be before the final rule goes into effect.

Winthrop & Weinstine continues to monitor the situation and we will update you on this topic as the litigation unfolds.  Employers should keep in mind that narrowly-tailored agreements that protect legitimate business interests are more likely to be enforceable under the current framework of state and federal law. For more information about employment agreements, including non-competition, non-disclosure, and non-solicitation provisions, please feel free to reach out to any member of our Employment team.

[1] Not all entities claiming tax-exempt status as nonprofits fall outside the FTC’s jurisdiction. To be exempted from the FTC’s jurisdiction, a corporation must be organized for and actually engaged in business only for charitable purposes, and the corporation’s income must go toward public interests, rather than allowing the corporation or its members to derive a profit.