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Legislative Preview: New Life for Noncompete Bill or Is Judicial Reform Better?

Posted in Legislative Developments

One of the bills that passed the Connecticut General Assembly last year was a bill that would have limited the scope and use of noncompete agreements.

But as I noted in a post last summer, Governor Malloy vetoed that piece of legislation.

In his veto message, however, he signaled a willingness to agree to some future compromise on the bill noting that “additional protections for employees may be warranted to guarantee a reasonable period of time to review a written noncompete agreement before entering into an agreement in the first instance.”

He went on state that “it would begetter for both employers and employees to receive greater clarity from the General Assembly on this issue next session.”

Late last month, the Connecticut Law Tribune ran an editorial suggesting that a legislative solution may not the best path forward, even in light of what it viewed as employer’s over reliance on them.

Noncompetition agreements have a valid place in today’s economy, but their growing use to stifle healthy marketplace competition, their theoretical underpinnings as a strained corollary to the employment at-will rule and the disproportionate bargaining strength often used by employers to obtain them have infected these contracts with a taint of inherent unfairness and commercial impropriety. There is a need for reform—reform carried out through the process of common law evolution.

Why did the editorial board conclude that legislative remedies are “not the best answer”?Because they are often “drastic and short-sighted”.  The board instead proposed that change come about in “orderly judicial reconsideration and doctrinal evolution.”

The editorial goes on to discuss the issues with noncompete agreements in greater detail and it’s worth a read.  It notes that noncompete agreements “have a valid role to play in Connecticut’s economic mosaic” and that “legislative reform would doctrinally freeze them in time.”

It is advice well worth considering as the General Assembly takes up this task.  It may be best to have no bill, then a lousy one.

(For a look at how one state, Georgia, has tackled this issue with legislation, check out this presentation.)

For employers, now is the time to speak up to your local legislators that a bill on the subject may not be the best path to what they may want to achieve.

  • Ryan Morse

    Dan:

    In an ideal world, non-compete and non-solicitation disputes should settle right away with a stipulation, otherwise the litigation could go well past the appropriate expiration date. We defended one that went for four plus years before the parties agreed to settle. The problem is the TRO, not so much the covenant. Many times there is little to no pre-hearing discovery, the employer may be demanding judicial relief from speculative or imagined harm, and there is no mandatory pre-hearing mechanism for mediation. I’d like to see expedited discovery in these cases, with mandatory pre-TRO hearing mediation. Legislation worries me, especially if they decide to focus on the class of employee as they have in the past. What are your thoughts on the employer’s side of the table?

    • ctemploymentlawyer

      Expedited discovery is fine in theory – but e-discovery has gotten out of control. There is no doubt that some employers use non-competes too much — every employee is unlikely to really need one. I’ve long preached to employers that the ones that most enforceable are the ones that are narrowly tailored to protect an interest of an employer. The higher up the employee, the broader it will probably be.