Executive Summary: The Connecticut legislature is currently considering Bill 5249 which, if passed, would considerably limit the use of non-compete agreements.
Traditionally, non-competes were used to protect employers from employees taking either trade secrets or clientele with them when they left their jobs. The agreement would prevent the employee from working for competitors in specific geographic areas for a limited time period. But such agreements, particularly with low-wage earners in the retail and restaurant industries, have been scrutinized in recent years.
Today, many employees argue that while they may be at will, they are essentially tied to their employer because of a non-compete. In other words, the employee can leave their job only in theory; in practice, they have no choice but to stay. Employers, on the other hand, especially in big-tech or practices dealing with large customer lists, find these non-competes to be vital tools in protecting their business.
While the proposed Bill will not completely eliminate the use of non-competes, it would create new parameters, as follows:
- The use of non-solicitation, confidentiality, and no rehire clauses will still be permissible;
- Non-competes, when permitted, will be limited to only one year and in the geographic areas where the employee actually worked;
- Non-competes can only be used with exempt employees who earn a specified minimum income;
- Any non-compete agreement must be separate from an employment offer or other employment-related agreements;
- The employee must be provided a copy of the non-compete not less than 10 business days before the employee must accept an offer of employment or otherwise must sign the non-compete;
- A non-compete can be required as a condition of employment (assuming all criteria are met), but once employment begins, adequate consideration must be provided in exchange for an employee accepting a non-compete;
- A non-compete cannot restrain an employee from engaging in other work during non-work hours, unless the other work substantially interferes with scheduling;
- If an employee quits for “good cause attributable to the employer,” the non-compete is unenforceable.
Bottom Line:
While the Bill is being considered and has not yet passed, this is not a new development for Connecticut or even the country. Recently a myriad of bills have been accepted or considered throughout the 50 states, all looking to limit non-competes. President Biden recently signed an executive order encouraging the Federal Trade Commission (FTC) to ban or limit non-compete agreements. The order was meant to promote competition and economic growth by making it easier for workers to change jobs, among other objectives. Some states, such as California, ban non-compete agreements outright, while other states, including Virginia, prohibit non-compete agreements with low-wage workers. Massachusetts, on the other hand, only bans non-competes for certain professionals such as nurses, physicians, and social workers.
Regardless of the eventual outcome, employers should make sure that their agreements and policies currently in place are up-to-date and comply with both the current and, if passed, new law. Employers can do so by making sure the agreement is narrowly tailored in a manner to truly protect legitimate trade secrets and customer goodwill.
To stay ahead of the curve, employers should reassess whether their non-compete agreements are needed or whether legitimate concerns about protecting confidential information for certain employees can be addressed through other means, such as non-solicitation agreements, which are more likely to survive scrutiny.
We will keep you updated on developments regarding this legislation. If you have any questions regarding this Alert, please contact the author, Michael Lewis, an attorney in our Hartford office at mplewis@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work or any member of our Non-Compete, Trade Secrets and Business Litigation practice group.