The busy season for the Connecticut General Assembly is continuing with the final push for bills now underway.
Another bill that has been sneaking below the radar is House Bill 6658. The bill, entitled “Employer Use of Noncompete Agreements”, has passed the Judiciary Committee, again without being referred to the Labor & Public Employee committee. It is now pending before the House.
The bill would apply to all employers in the state and, for the first time, attempt to regulate all restrictive covenants or non-compete agreements through a law. (Previously only broadcast employees and security guards were covered by such restrictions.) Only agreements created after October 1, 2013 would be covered. Currently, the rules regarding such agreements have been developed through caselaw.
The bill allows an employer to use such an agreement “if (1) the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business, and (2) prior to entering into the agreement or covenant, the employer provides the employee a reasonable period of time, of not less than ten business days, to seek legal advice relating to the terms of the agreement or covenant.”
It’s the second part of the bill that should concern employers because it goes far beyond current caselaw. It would create a new cause of action (or way an employee can bring a lawsuit) for employers that violate the law and allow for the recovery of damages and attorneys fees.
Any person who is aggrieved by a violation of this section may bring a civil action in the Superior Court to recover damages, together with court costs and reasonable attorney’s fees. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement or covenant to render it reasonable in light of the circumstances in which it was entered into and specifically enforce the agreement or covenant as limited.
The implications of this are enormous. Theoretically, all employees who sign such an agreement could decide to file a lawsuit or threaten to file a lawsuit on any agreement. If they are successful in any way, they could be entitled to damages and then tens of thousands in attorneys fees. Even if the employee won only a partial success in their case, the language of the bill allows for the employee to recover a disproportionate amount of money. Such a statute would encourage litigation.
As a practical matter then, employers would be at great risk for trying to enforce any restrictive covenant. Contracts would be very difficult to enforce and employees would use that leverage not only to avoid such contracts but also to gain some type of settlement amount.
Another issue with the proposed bill is that it is not entirely consistent with the caselaw. Cases use a variety of factors to evaluate the reasonableness of a restrictive covenant including: (1) the length of time the restriction operates, (2) the geographical area covered, (3) the fairness of the protection afforded the employer, (4) the extent of the restraint on the employee’s opportunity to pursue his occupation, and (5) the extent of interference with the public interest.
The proposed bill seemingly simplifies the analysis but it is unclear how courts would interpret the reasonableness requirement. Is the same as existing law? Or does it mean something different?
The CBIA has also flagged other issues with the statute. Employees could have a cause of action merely if the employer did not give a ten-day waiting period. And the definition of an employee is so broad that it may even cover independent contractors.
Restrictive covenants are a complicated area. While having some legislatively-created rules in the area may be beneficial in the long run, no one has identified why there is a pressing need to rush this bill through now.
We should learn from other states’ experience that this is a complicated issue. Georgia, for example, passed a similar bill that created more questions than it answered. The General Assembly would be best served by evaluating the merits of this type of legislation for a few months and figure out the best way to address any issues it sees — not rush a bill through without a proper vetting of the legal issues.