Minnesota’s legislature rushed through several bills this year affecting recruiting and staffing associations and other service providers such as property management companies. One such law may, as one member of the Minnesota House of Representatives noted, have “profound” consequences for service providers regarding contractual conversion fees. As the law is largely unclear, this article provides legislative history and intent that may help service providers understand their potential obligations under the new laws.

Quick Hits

• Minnesota’s new law restricting “shadow noncompetes” is intended to close a statutory noncompete loophole for employees who are placed at a company by a service provider and unaware their direct employment by the service provider’s customer is restricted by an agreement between the two entities.
• The law may prohibit conversion fees if they are so “high” or “too large” as to deter customers from offering employment directly to workers placed with them.
• The law requires all employees working for a service provider under an agreement with a customer that violates state law to be given notice of the agreement and its restrictions (as of July 1, 2024).
• The law provides that the only exclusion from restricting employment covenants between two entities is for computer software development workers and “related services.” This exclusion is seemingly narrowly tailored to the tech industry where employees are hired, trained, and paid by the service provider,...

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