We wrote recently about a proposed bill that was introduced in the New Jersey State Assembly on May 2, 2022, which would limit certain provisions in restrictive covenants, and a bill that was passed the following day by the Colorado Senate and is expected to go into effect in August that would likewise limit the enforceability of noncompetes and other post-employment restrictive covenants. Not to be left out, members of the Connecticut General Assembly recently introduced House Bill 5249, which would limit the applicability of noncompete agreements in that state as well. The bill is very similar in many respects to the noncompete law passed in 2018 in Massachusetts, and likely borrowed heavily from that law. Here are the details:
- Limitations on duration, geographic scope, and scope of proscribed activities. Noncompetes would be limited to one year following termination or separation of the worker, unless the employer pays “garden leave” in the amount of the worker’s base salary and benefits for the entire restricted period. Noncompetes would be limited geographically to the areas in which a worker provided services and/or had a material presence or influence within the last two years of employment. And noncompetes would be limited to the types of work that the worker performed during the last two years of employment. Any noncompetes that do not meet these requirements would be presumed entirely unenforceable.
- Codifying the reasonableness requirement. Noncompetes would be required to protect a legitimate business interest of the employer—including trade secrets, confidential information, and customer goodwill—that could not be reasonably protected by less restrictive means, such as nondisclosure and non-solicitation agreements.
- Noncompetes unenforceable against certain employees. Noncompetes would not be enforceable against employees who are exempt under CT Gen Stat §31-58, as well as low wage workers, which is defined in the bill as employees earning compensation of less than three times the minimum fair wage and independent contractors earning compensation of less than five times the minimum fair wage. Noncompetes also would not be enforceable against workers who resign for good cause attributable to the employer or contractor. Notably, the bill does not currently exempt employees who are terminated without cause or laid off like many other states (including Massachusetts) have done.
- New signature and notice requirements. Noncompetes would have to be signed by both the worker and the employer or contractor separately from any other agreement underlying the relationship between the worker and the employer or contractor, and must include a statement of the worker’s rights that includes the following: (A) not all covenants not to compete are enforceable; (B) covenants not to compete for workers earning less than the amounts identified above are illegal; (C) the worker may contact the Attorney General if the worker is subject to an illegal covenant not to compete; and (D) the worker has the right to consult with counsel prior to signing the covenant not to compete.” Moreover, the written text of the noncompete would have to be provided to the worker no later than ten (10) business days prior to either (i) the worker’s deadline to accept an offer of employment or an independent contractor relationship, or (ii) the date such covenant is signed, whichever is earlier.
- Continued employment is insufficient consideration. If a noncompete is added to an existing employment or independent contractor relationship, it would have to be supported by sufficient consideration independent from continued employment or independent contractor relationship.
- Out-of-state choice-of-law and forum selection clauses are invalid. Noncompetes would not be permitted to require a worker to submit to adjudication outside of Connecticut or otherwise purport to deprive the worker of the protections and benefits of the law (e., no out-of-state choice-of-law provisions).
- Blue penciling is no longer permitted. Courts would not be permitted to judicially modify a noncompete that violates the law in order to partially enforce it. Currently, Connecticut law permits courts to blue pencil overbroad noncompete agreements.
- Damages and penalties. If a court or arbitrator were to decide that a noncompete violates the law, the worker would be entitled to the greater of: (1) his or her actual damages, or (2) a penalty of five thousand dollars—in addition to reasonable attorneys’ fees, expenses, and court costs.
- Exclusivity agreements are prohibited. Interestingly, the bill would also prohibit employers and contractors from requiring a worker to sign or agree to an exclusivity agreement unless the worker is an exempt employee earning compensation of more than three times the minimum fair wage or is an independent contractor earning compensation more than five times the minimum fair wage, all as defined in CT Gen Stat §31-58. However, exclusivity agreements may be permitted if the additional job would imperil the safety of the worker, the worker’s co-workers, or the public or would substantially interfere with reasonable and normal scheduling expectations of the worker. And importantly, this provision of the bill is expressly not intended to be construed to alter a worker’s duty of loyalty or laws and policies preventing conflicts of interest, meaning that workers may not work in competing roles simultaneously (e., “in-term” noncompetes would remain permissible).
- Effective date. If passed, and signed by the Governor, the law would go into effect as of July 1, 2022.
As always, we will continue to track the progress of this bill and others that are currently working their way through state legislatures and will report back with any important updates.
- Member of the Firm