Thursday, May 16, 2013

Proposed Non-Compete Legislation in Connecticut Follows Legislative Trend

So far, 2013 has been active for proposed non-compete legislation.

At the beginning of any calendar year, it's not surprising to see a number of bills introduced in state assemblies or legislatures - many of which have no chance of becoming law. This year, bills impacting non-compete agreements have been proposed in Minnesota, Massachusetts, Maryland, and Illinois. We've also seen the momentum build in various states concerning restrictions on employer access to social media passwords. And very recently, Texas enacted what many believe to be a business-friendly version of the Uniform Trade Secrets Act.

Following this trend, the Connecticut House of Representatives Bill No. 693 - regulating non-compete agreements - reported favorably out of the Judiciary Committee. A copy of the bill file is embedded below, but I'll summarize it briefly.

There are two chief elements to the law:

  1. It would codify the common law, in essence allowing non-competes to be enforced if reasonable as to time, territory, and scope of activity.
  2. The procedural change requires employers to provide at least ten days prior notice to the employee to get a legal review of the non-compete.
  3. The law allows for, but does not require, equitable modification by the court of an overbroad agreement.
  4. It only applies to agreements "entered into, renewed or extended" on after October 1, 2013.
A couple of open questions - big surprise - remain:

  1. The law does not mention anything about what an employer must show in terms of a legitimate business interest supporting the covenant, though that is something every employer must be prepared to demonstrate.
  2. It likely does not apply to confidentiality agreements.
  3. It is not clear whether it applies to non-solicitation agreements.
  4. It is limited to employment agreements, not those between businesses (or businesses and independent contractors).
My favorite aspect of the proposed bill is the proviso that states a person harmed by a violation of the law "may bring a civil action" to recover damages, costs, and fees. This is meaningless because anyone "may bring a civil action" for just about anything. They just might not be successful. The law, though, does not require an award of attorneys' fees for a successful enforcement of, or challenge to, the underlying covenant.

Finally, I am not sure why the Judiciary Committee felt it necessary to have the law apply to agreements "extended" on or after October 1, 2013. Arguably, any non-compete that is currently in effect is "extended" past the effective date of the statute. I would hope courts wouldn't construe this provision in an absurd way, as that could have the unintended consequence of invalidating agreements entered into previously in full compliance with common law.

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