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Connecticut Legislature Passes Non-Compete Legislation

Posted in Legislation, Non-Compete Enforceability, Restrictive Covenants

We previously reported on H.B. 6658, which was introduced earlier this year in the Connecticut House of Representatives.  The Connecticut Legislature passed the legislation on the last day of the legislative session.  The final text of the Act, which was enacted as Public Act No. 13-309 and will go into effect on October 1, 2013 assuming the Act is signed by the governor, can be found here.

The Act provides that, in certain circumstances specified in the Act, a “noncompete agreement” (which is not defined in the Act) 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 Act 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 Act 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 Act represents a significant development in Connecticut noncompete law.  Nevertheless, the Act contains a significant limitation: unlike earlier drafts of the legislation, the Act 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 Act 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 Act 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 Act 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.  However, given that the final version of the Act limited the scope of the original bill in most respects, it seems unlikely that the legislature intended to expand the scope of the Act to include restrictive covenants other than true noncompete covenants.

We will continue to monitor developments on this new law. In the meantime, any employers with operations in Connecticut should include compliance with this statute in any due diligence checklist for mergers or other acquisitions. For more information on this legislation or other non-compete or trade secret legislation, please see our recent webinar and podcast regarding the topic.