As far as I understand, minifyEnabled false means that ProGuard is not run to minify/obfuscate your library module. Which is what you want because the library module can’t know which parts of it are going to be used in your application module.
Instead, the library module must provide its relevant proguard rules to the app module (via consumerProguardFiles) and then the app module will run ProGuard with both its own rules and the library’s rules together to minimize the final application APK.