If you’re a regular reader of Suits By Suits, you know that we think state law regarding the interpretation and enforceability of non-compete clauses is rapidly changing, driven in large part by recent appellate decisions in California that effectively renders most non-compete clauses unenforceable in that state.
Last month, we kept you apprised of a new law that passed the state legislature in Connecticut; that law, Connecticut Public Act No. 13-309, would have required employers who are acquired by or merged into another company and who require their employees to accept a non-compete clause as a condition of continued employment to provide those employees with a copy of the agreement and at least 7 days’ notice to evaluate whether or not to sign the agreement.
Notably, the final bill passed by the legislature was substantially cut down from its original form, which would have altered the common-law standard (the “Legitimate Business Interests” test or LBI) Connecticut courts use in evaluating whether or not such clauses are enforceable. The amended bill made no changes to Connecticut’s legal standard; as such, we predicted that the law would do “very little to alter the landscape.”
That prediction turned out to be quite the understatement, as Connecticut’s Gov. Dannel P. Malloy vetoed the bill by returning it to the legislature without his signature.
Gov. Malloy’s articulated reason for vetoing the proposed legislation is that “the bill leaves certain key terms undefined or unclear,” which he argues “has the potential to produce legal uncertainty in the event of merger or acquisition.” The implication is that such uncertainty would increase the risks of litigation on both sides; Gov. Malloy accordingly requested that in the next session, the legislature return with “greater clarity” for the benefit of both employers and employees.
How the legislature will respond is anyone’s guess, but it’s worth pointing out that the current common law standard governing the enforceability of noncompete clauses in Connecticut – which the governor called “robust” in his veto statement – is itself a somewhat ambiguous balancing test (LBI) that requires a court to evaluate numerous factors, including a clause’s (1) duration, (2) geographical scope, (3) protection of the employer, (4) restraint on the employee’s right to pursue work, and (5) interference with the public interest. See Robert S. Weiss & Assocs v. Wiederlight, 208 Conn. 525 (1988). Obviously a “reasonable” duration is less defined than a specific term (say, six months, as is being considered in neighboring Massachusetts).
Might Gov. Malloy’s veto and admonition encourage the Connecticut Judiciary Committee – which previously approved a bill that would have changed the Weiss common-law standard by a vote of 44-0 – to revisit that state’s long-standing use of the LBI balancing test to evaluate the validity of noncompetes? We’ll be watching.
Our goal at Suits by Suits is to keep you informed (and even entertained) about legal issues that can come up in disputes between companies and their executives. So how are we doing? If you think we are doing well, then please consider nominating us for the ABA Journal’s Blawg 100 by clicking here. The deadline for nominations is Friday, August 9.
This week in Suits by Suits:
They’re beautiful. They’re charming. And they’re bringing drinks.
She moves toward you like a movie star, her smile melting the ice in your bourbon and water. His ice blue eyes set the olive in your friend’s martini spinning. You forget your name. She kindly remembers it for you. You become the most important person in the room. And relax in the knowledge that there are no calories in eye candy.
- Excerpt from a brochure recruiting candidates to work as “Borgata Babes,” serving drinks in the Borgata casino in Atlantic City, New Jersey.
Here at Suitsbysuits, we write posts that usually focus on rather serious disputes between executives and employers: the impact of arbitration and non-compete clauses, for example; or protections for whistleblowers. Occasionally we’ll write on more general features of employment that can impact the executive-employer relationship, such as religious discrimination or discrimination based on gender or pregnancy.
Those are all, shall we say, weighty matters. Today’s post is about a weighty matter in another sense: a lawsuit between a group of women who worked at the Borgata casino in Atlantic City, New Jersey, as cocktail servers, and alleged that the casino discriminated against them because of their gender and weight.
Congress is about to adjourn for its summer recess and some say it’s been somewhat inactive recently. But some blocks west of Capitol Hill at Suits by Suits Global Headquarters, we’ve been busy following many significant developments involving employers and executives, including these stories:
P.S.—While we may not find fame and fortune as legal bloggers, there is glory to be had in the ABA Journal’s Blawg 100 list. If you enjoy reading Suits by Suits, please consider nominating us for the Blawg 100 by Friday, August 9. It will only take a few minutes.
Part fashion model, part beverage server, part charming host and hostess. All impossibly lovely. The sensational Borgata Babes are the new ambassadors of hospitality…On a scale of 1 to 10, elevens all.
Eyes, hair, smile, costumes so close to absolute perfection as perfection gets, Borgata Babes do look fabulous, no question. But once you can breathe again, prepare to be taken to another level by the Borgata Babe attitude. The memory of their warm, inviting, upbeat personalities will remain with you long after the vision has faded from your dreams.
- Excerpt from a brochure recruiting candidates to work as “Borgata Babes,” serving drinks in the Borgata casino in Atlantic City, New Jersey.
In our first post in this series, we looked at the facts of the case that 22 “Borgata Babes” brought against that Atlantic City, New Jersey casino. In their suit, these woman alleged the casino’s enforcement of a weight requirement – no Borgata Babe (the vast majority of whom were women) could gain more than 7% of their weight while employed as “Costumed Beverage Servers” to ferry drinks to high-rollers – was applied in a way that violated New Jersey’s law barring gender discrimination, because female Babes who gained this amount of weight were disciplined or terminated while male Babes who gained weight allegedly were not.
Regular readers of this space know we’ve written a lot about non-compete clauses in executive employment agreements. Indeed, we should write about them and you should know about them: they can have a significant impact, they’re often misunderstood or overlooked, and the law on them is in a rapid state of flux, as some states reconsider how they will treat them.
Now one of the editors of this blog, P. Andrew Torrez of our Baltimore office, has published a great piece in the National Law Journal about a California state supreme court decision that is spearheading a wave of changes to non-compete clauses all over the nation. It’s a must-read for anyone dealing with employees or corporate operations in the Golden State.
It’s also an honor for us to have one of our own published in the National Law Journal. And we’re not just saying that because of the old maxim about not arguing with people who buy paper by the ton and ink by the barrel, but because NLJ is, as legal periodicals go, a serious and significant one (its blog covering law in our home base of Washington, D.C., is first-rate, too).
P.S.—While we may not find fame and fortune as legal bloggers, there is glory to be had in the ABA Journal’s Blawg 100 list. If you enjoy reading Suits by Suits, please consider nominating us for the Blawg 100 by Friday, August 9. It will only take a few minutes.
Our Suits by Suits Inbox this week:
Earlier this week, a New York state court declined to second-guess an arbitrator’s decision that BDO, USA does not have to indemnify or pay the legal bills of its former CEO, Denis M. Field, in his criminal case.
As we have noted here before, the first battle in a legal dispute between a company and its former executive is often over whether the dispute will be decided by a judge (and, ultimately, a jury) or a private arbitrator. Field v. BDO underscores why the stakes for that battle are so high: if you don’t like the arbitrator’s decision, you almost certainly will be stuck with it. That’s because the standard that courts apply in reviewing arbitrators’ decisions – even decisions about what the law requires – is a very forgiving standard. By contrast, the standard that appellate courts apply in reviewing trial judges’ decisions is less forgiving, which means that losers in the courts have a better shot at reversing decisions they don’t like than losers in arbitration.
In federal courts across the country, employers have sought to limit the Dodd-Frank Act’s definition of “whistleblower.” Just last week, this challenge seemed futile. Both the SEC (in its regulations) and a number of federal district courts had rejected employers’ reading of the statute, under which the “whistleblower” term – and the accompanying right of action for retaliation – would be limited to those employees who reported misconduct to the SEC.
Last Wednesday, the Fifth Circuit flipped the script, holding that “the plain language of the Dodd-Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC.” Asadi v. GE Energy (USA), L.L.C., No. 12-20522 (5th Cir. Jul. 17, 2013), slip op. at 5.
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.
John J. Connolly
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