Back in June, I talked about the standard that courts will follow in deciding whether or not to enforce a non-compete agreement between an employer and an employee.  (Go read it here first.)

But many employers want to know something more straightforward: How long can I make the restrictive covenant in my agreement; in other words, how long can the non-compete provision be?

The answer, of course, is “it depends” — in general, the higher-ranked the employee, the broader the scope of the non-compete.  And it also depends on other factors, such as the type of businesses the employee would be prevented from working for, and the geographic nature of the restrictions.

Of course, that’s not a satisfying answer either because again, the central questions is, what’s the maximum amount of time that a court will enforce a non-compete agreement?

In Connecticut, two years is seen by some as the typical time period for enforcing a non-compete agreement, as one case ruled back in 1988.

But where the time restriction is accompanied by a narrow geographic or industry restriction, courts have granted non-competes of five years.  Here are some examples:

Can you do something longer? Perhaps. In one reported instance in another state, a ten year non-compete agreement was ruled enforceable! But that’s definitely the exception, rather than the rule.

Indeed, a five-year non-compete isn’t going to work in some (many?) employment agreements.  So before you rewrite all of your agreements to have a broad restrictive covenant, you should check with experienced employment law counsel and figure out if your agreement really is narrowly tailored to meet you needs.  And experienced counsel can also add in certain contract provisions to help in those instances where the courts may have concerns with a broader non-compete.

But if you’ve been wondering if you courts enforce five-year non-compete agreements, the above cases show that it happens — perhaps even with more regularity than you might first think.

The New York Times this morning has an article that suggests that non-compete agreements are being used increasingly in a broader array of jobs.

Pick your fights carefully

His evidence? Well, the article doesn’t cite that.

Though, to the reporter’s credit, in noting the discussion going on in Massachusetts over legislation on the topic, he cites to a trade group’s executive vice president who said, “The ban to noncompetes is legislation in search of an issue.”It quotes one professor as saying “There has been a definite, significant rise in the use of noncompetes, and not only for high tech, not only for high-skilled knowledge positions.”

Connecticut went through this same discussion last year. Indeed, a watered-down bill restricting the use of non-compete agreements passed the Connecticut General Assembly last year.  But Governor Malloy vetoed it stating that the bill left “certain key terms undefined or unclear.”

“As a result” he added, “this bill has the potential to produce legal uncertainty and ambiguity in the event of a merger or acquisition. If I signed into law, costly and time-consuming litigation would likely be required to provide necessary clarity.”

Thus, Connecticut is still following the “common law” when it comes to non-compete agreements — that is, the law that has been developed through court cases over the years.  Even the Connecticut Law Tribune suggested that such a path may be the right one for the state:

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.

The governing principles of noncompete agreements in Connecticut have been fairly well-settled.  As one court stated nearly 40 years ago:

In order to be valid and binding, a covenant which restricts the activities of an employee following the termination of his employment must be partial and restricted in its operation “in respect either to time or place, … and must be reasonable—that is, it should afford only a fair protection to the interest of the party in whose favor it is made and must not be so large in its operation as to interfere with the interests of the public.  The interests of the employee himself must also be protected, and a restrictive covenant is unenforceable if by its terms the employee is precluded from pursuing his occupation and thus prevented from supporting himself and his family.

What does that mean for employers? Ultimately, it means creating a non-compete that is narrowly tailored to protect a legitimate business interest. Having all employees — from your senior vice president to the mail clerk — sign the same agreement with the same restrictions may prove to be its undoing.

There are, of course, exceptions to the rule — security guards, for example. California bans them.  Other states, like Georgia, have statutory restrictions on them.

So before you seek to enforce your non-compete agreement, check with local counsel first to make sure it’s going to pass muster.

 

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.

Continue Reading Bill Targets Non-Compete Agreements But Would Also Create New Cause of Action

It’s been a crazy week here for reasons I hope to share in a future post.

But in the meantime, the world of employment law still continues. Here are some items worth reading that I had hoped to talk about further. This brief recap will have to do for now.

  • Want some tips on how to avoid liability for your holiday party? Washington Workplace Law has a post that’s a good place to start.
  • Workplace Privacy Counsel has a notable piece on the balance employers face in dealing with HIPAA and the ADA:  How much medical information is private? The Seventh Circuit recently rejected the EEOC’s view. 
  • The Second Circuit recently handed down a favorable decision for employers on non-compete agreements. The employee had tried to challenge it but the court rejected the argument that an employee’s loss of income represented “irreparable harm”.  Trading Secrets blog has the details here.
  • The SCOTUSBlog recapped the oral argument earlier this week in the U.S. Supreme Court about a case that could help define who a “supervisor” is for sex harassment case purposes.  A decision is expected early next year. 
  • The Workplace Class Action blog discussed whether an employer’s discovery request for Facebook postings of employees, who were part of a claim brought by the EEOC, was a proverbial “fishing expedition”.  A court rejected that argument. 

With the blog approaching its fifth (!) anniversary later this year, I thought it was time to revisit some subjects that I covered in the blog’s infancy and update them.

One such story from way back on September 14, 2007, was a new law that prohibited non-compete agreements by security guards.  Back then, I stated:

[The new law] prohibits employers from requiring security officers to “enter into an agreement prohibiting such person from engaging in the same or a similar job, at the same location at which the employer employs such person, for another employer or as a self-employed person”.

(If the employer can “prove” that the employee received trade secrets, then a non-compete can be used.)

The law refers to the USDOL’s Standard Occupational Code for “Security Guards” (33-9032) as the covered group.

So what’s new? Well, in 2010, the USDOL changed the defintion for this code to make it a bit broader. 

Previously, this code covered those who “Guard, patrol, or monitor premises to prevent theft, violence, or infractions of rules.”

The new definition, or at least interpretation, covers those beyond the traditional notion of a security guard. 

Guard, patrol, or monitor premises to prevent theft, violence, or infractions of rules. May operate x-ray and metal detector equipment. Excludes “Transportation Security Screeners” (33-9093).  Illustrative examples: Bodyguard, Bouncer, Bank Guard

There are ways, however, for security companies to protect their workforce from poaching. For example, a security company can still contract with the company for which it is providing services that any successor security company will not use the predecessor’s security guards for a period of time.   The law only prohibits the use of non-compete agerements with the security officers themselves.

Regardless, employers should be aware of the restrictions this law places and draft any restrictive covenants to comply with this law.

It’s been a busy week. The ABA Journal’s Legal Rebels project stopped by for a visit yesterday. We talked about the blog and how attorneys and clients can really take advantage of technology

(We also talked about bar association activities; my public thanks to all the people on the various task forces and committees as well as the CBA staff for their tireless work on the projects referred to. Profiles like this tend to understate the accomplishments of others so I’d like to publicly acknowledge those folks too.)

But with all else going on, there’s just enough time for another edition of "Quick Hits" where I touch on stories you might have missed recently: