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As I continue the updates on legislation that is making its way at the General Assembly, it’s time to revisit a bill that has been floated in prior years — a bill banning many non-compete agreements.

House Bill 5269 is this year’s version and it still has a number of restrictions that employers should be aware of. And given that the Labor Committee approved the bill earlier this month, this is something that is more than theoretical.

The bill invalidates all noncompete agreements for employees on July 1, 2024 assuming any of the following conditions have been met:

  • The employee is a non-exempt (hourly) employee;
  • The employee is an exempt employee (salaried) earning less than three times the minimum wage (currently at $97,905 per year).

The bill also prohibits non-compete agreements for certain independent contractors.

And what is a non-compete agreement? Here, it means a contract, provision or other agreement that “restrains a worker from, or imposes penalties on a worker for, engaging in any lawful profession, occupation, trade, calling or business of any kind in any geographic area of the state, for any period of time after separation from employment.”

And as for what it doesn’t mean, the bill indicates that it doesn’t include:

  • a nonsolicitation agreement, so long as it (i) is not longer than a year, and (ii) is no more restrictive than necessary in duration, geographic scope, type of work and type of employer,
  • a nondisclosure or confidentiality agreement (though see my post from yesterday which would bar many of those provisions),
  • a no re-hire contract or provision,
  • any covenant not to compete already regulated by Conn. Gen. Stat. Secs. 20-14p (doctors), 20-670 (homemakers-companions) and 31-50b (broadcast employees), or
  • a covenant made either (i) in anticipation of a sale of the goodwill of a business or all of the seller’s ownership interest in a business, or (ii) as part of a partnership or ownership agreement.

But that’s not all. In order for the non-compete agreement for exempt workers to be valid, it must also meet a whole host of criteria including:

  • It cannot be longer than a year;
  • It must be necessary to protect a legitimate business interest that couldn’t be protected by less restrictive means such as a non-solicitation provision.
  • It must be reasonable in duration, geographic scope, type of work and type of employer covered by the non-compete;
  • A written copy of it must be given not later than 10 business days prior to (A) the worker’s deadline to (i) accept an offer of employment, or (ii) enter into an independent contractor relationship, or (B) the date the covenant not to compete is signed, whichever is earlier
  • It must contain a statement of the worker’s rights under the covenant not to compete that meets certain criteria including that the worker has the right to consult with counsel:
  • It must be separated from any other employment agreement;
  • If added to an existing employment relationship, the worker must be provided with additional consideration (beyond just continued employment)
  • It must be adjudicated in this state.

Despite Connecticut being an at-will state, the non-compete will also not be enforceable if the employee ends the working relationship “for good cause attributable to the employer”.

(That term is never defined in the bill and would present headaches to courts having to figure out what exactly is “good cause attributable to the employer”. Is it a requirement, for example, that the employee work in the office 5 days a week? A few executives may have employment contracts that allow them to resign “for good reason” in order to receive severance and that is typically defined by things like a demotion or a relocation).

While the bill is not as punitive as California’s new law banning most non-compete agreements for employers (by creating a cause of action), this bill — if passed and signed by the Governor — would upend decades of well-settled caselaw on the enforcement of non-compete agreements. Employers wishing to use non-compete agreements might decide, for example, to hire workers outside of Connecticut.

It remains to be seen whether the bill can garner enough support to get put up to a vote. In previous years, similar bills have also passed committee only to languish before a full vote was taken. Will this year be different? Stay tuned.