The State-By-State Smackdown Continues: Now, With More Connecticut!‎

As we here at Suits By Suits continue to monitor changes in state law regarding the status of covenants not to compete (the “State-by-State Smackdown”; see our latest post here), a fifth state has gotten into the act:  Connecticut.

Some background:  like most states – but unlike California – Connecticut follows the traditional balancing-test approach used in most states to evaluate the legality and enforceability of employer covenants not to compete.  (This is sometimes called the “legitimate business interests” or “LBI” test.)  Under Connecticut law, courts must consider the reasonableness of a non-compete 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).

Before the July 4 holiday, the Connecticut state legislature passed a new law with respect to non-competes.  The law itself does very little to alter the landscape, but most intriguing is what the legislature rejected.  Read more after the jump….

The new law, Connecticut Public Act No. 13-309, states as follows:

AN ACT CONCERNING EMPLOYER USE OF NONCOMPETE AGREEMENTS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective October 1, 2013) (a) As used in this section:

(1) "Employee" means any person engaged in service to an employer in the business of the employer; and

(2) "Employer" means a person engaged in business who has employees, including the state and any political subdivision thereof.

(b) If (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; any such noncompete agreement entered into, renewed or extended on or after October 1, 2013, between the employer and employee shall be void, unless prior to 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.

(c) Nothing in this section shall be construed to limit or deny any rights an employee may have at law or in equity. An employee may waive the right provided under subsection (b) of this section if such 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.

In other words, the new law (a) only applies to employers who have merged with or been acquired by another business; (b) does not change the Weiss standard balancing test for determining whether courts will or will not enforce a covenant not to compete.  While we will need to wait until after the law takes effect on October 1 of this year, it’s not a stretch to think that the practical effect of requiring a (waivable) 7-day disclosure to employees when their employer has been acquired will be negligible.

That being said, the law as passed was amended by the legislature (“House Amendment ‘B’”) from the prior bill, which would have codified a modified version of the Weiss standard into law, declaring that “an employer may obtain from an employee 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 of business after termination of employment if … the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business.”  No explanation was given as to why the legislature killed that version of the bill, which passed the Judiciary Committee 44-0.

So the bottom line is that Connecticut could have prohibited its courts from modifying the common-law standard regarding the enforceability of noncompete clauses by enacting the prior version of the bill.  The legislature refused to do so.  Now we’ll wait and see whether the Connecticut courts use this as an opportunity to respond to the changing national trends regarding noncompetes, or whether they reaffirm the long-standing Weiss standard.  We’ll obviously keep watching.

• Breach of Contract