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Connecticut Governor Vetoes Noncompete Statute Passed By Legislature

Posted in Legislation, Non-Compete Enforceability

We previously reported on H.B. 6658, which was introduced earlier this year in the Connecticut House of Representatives. On the last day of the legislative session, the Connecticut legislature enacted a substantially watered-down version of the bill as Public Act No. 13-309, the full text of which can be found here. In yet another twist, however, last Friday Governor Dannel P. Malloy vetoed the legislation, returning the bill to the legislature with a letter noting his concerns about a lack of clarity in the final version of the bill enacted by the legislature.

The final bill, which would have gone into effect on October 1, 2013 if signed by Governor Malloy, provides that, in certain circumstances, a “noncompete agreement” (which is not defined in the bill) entered into, renewed, or extended on or after October 1, 2013 between an employer and employee is void, unless, “before entering into the agreement, the employer provides the employee with a written copy of the agreement and a reasonable period of time, of not less than seven calendar days, to consider the merits of entering into the agreement.” Employees can waive the right provided under the bill if the waiver is reduced to a separate writing, sets forth the right being waived and is signed by the employee prior to entering into the agreement.

Because the bill represents the first time that Connecticut has enacted a non-compete statute of general applicability to all employees in the state (existing statutes apply only to security guards and broadcasters), the bill would have represented a significant development in Connecticut noncompete law if signed into law. Nevertheless, the final bill contains a significant limitation: unlike earlier drafts of the legislation, the bill only applies when:

(1) “an employer is acquired by, or merged with, another employer,” and

(2) “as a result of such merger or acquisition an employee of the employer is presented with a noncompete agreement as a condition of continued employment with the employer.”

The final version of the bill also contains three other noteworthy departures from the draft bill.

First, a prior draft of the bill would have provided employees with a statutory basis for filing suit against employers who act in violation of the law (including recovery of damages and attorney’s fees). The final bill lacks this provision.

Second, a prior draft of the bill would have required employers to provide employees with “at least 10 days, and more if reasonable, to consider the merits of entering into the agreement.” The final bill dropped the number from 10 to 7 days and omitted the vague “more if reasonable” language.

Third, a prior draft of the bill provided that the bill applies to “an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line or business after termination of employment.” In contrast, the final version of the bill refers only to “a noncompete agreement” without further definition. It is unclear whether the legislature intended the language in the final version to be shorthand for true noncompete agreements (i.e., agreements that “expressly prohibits an employee from engaging in employment or a line or business after termination of employment”) or whether they intended the term “noncompete agreement” to include other post-termination restrictive covenants, such as covenants not to solicit customers and employees.

In his letter returning the bill to the legislature, Governor Malloy observed that, in light of uncertainty in the final bill, “it would be better for both employers and employees to receive greater clarity from the General Assembly on this issue next session.” We will continue to monitor developments on legislation in Connecticut if and when comparable legislation is introduced in the legislature at the next legislative session.

*Please note that there was confusion within several media outlets and blogs, including Trading Secrets, as to whether the Governor had in fact signed this legislation. We apologize for any confusion caused by those reports.