The bill, known as “Employer Use of Noncompete Agreements,” is House Bill 6658. The bill recently passed in the Judiciary Committee, and is currently pending before Connecticut’s House of Representatives.
As it is written, the bill is intended to apply to all Connecticut employers. The bill will regulate all non-compete agreements in effect after October 1, 2013, and will be the first of its kind in Connecticut. As of now, requirements for non-compete agreements are based on case law.
The bill permits the use of non-compete agreements if: “(1) the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business, and (2) prior to entering into the agreement or covenant, the employer provides the employee a reasonable period of time, of not less than ten business days, to seek legal advice relating to the terms of the agreement or covenant.” The notice provision is similiar to the notice requirements in Oregon and New Hampshire.
Unlike the current requirements for non-compete agreements, which can be found in the state’s case law, this new legislation would provide employees with a statutory basis for filing suit against employers who act in violation of the law. The new law would allow for the recovery of both damages and attorney’s fees as follows: “any person who is aggrieved by a violation of this section may bring a civil action in the Superior Court to recover damages, together with court costs and reasonable attorney’s fees. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement or covenant to render it reasonable in light of the circumstances in which it was entered into and specifically enforce the agreement or covenant as limited.” The proposed legislation permits equitable modification by the court of an overbroad agreement.
Employers should take note of this proposed legislation, as it could have significant implications if it passes. Such a statute may encourage litigation, as employees who are at all successful in challenging their agreement may stand to recover a significant sum.
The Connecticut Business and Industry Association has pointed out that the legislation may be overly broad. The definition of employee is broad enough that it could potentially include independent contractors. Furthermore, even if an agreement otherwise complies with the laws, an employee could have a cause of action if an employer fails to provide a ten day waiting period.
As the Connecticut Employment Law blog explains, the bill could prove problematic for the courts, as it is not consistent with the case law: courts “use a variety of factors to evaluate the reasonableness of a restrictive covenant including: (1) the length of time the restriction operates, (2) the geographical area covered, (3) the fairness of the protection afforded the employer, (4) the extent of the restraint on the employee’s opportunity to pursue his occupation, and (5) the extent of interference with the public interest. “ Here, there is no telling how the courts would interpret the reasonableness standard in the legislation, and whether it would be consistent with current case law. Additionally, as Ken Vanko points out on his non-compete blog, the proposed legislation likely does not apply to confidentiality agreements and it is unclear whether it applies non-solicitation agreements.
Whether the Connecticut bill will pass remains to be seen, as we expect that the Connecticut business community will weigh in. We will continue to keep you apprised of future developments concerning the bill.