Lawyers who represent employers were largely relieved to learn that Governor Dannel Malloy had vetoed a measure that could have cast doubt on the validity of some non-competition agreements signed by workers.
The veoted bill would have applied to employees who are asked to sign non-compete agreements after an employer is merged with or acquired by another company. At issue was whether those employees should be given a week-long period to consider whether or not to sign the non-compete agreement.
Employers use non-competition agreements to prevent employees from jumping ship to rival companies. In a letter explaining his veto, Malloy said "additional protections for employees may be warranted to guarantee a reasonable period of time to review a written non-compete agreement," but that the law passed by the legislature was unclear.
"Unfortunately, this bill leaves certain key terms undefined or unclear," Malloy wrote. "As a result, this bill has the potential to produce legal uncertainty and ambiguity in the event of merger or acquisition. If signed into law, costly and time-consuming litigation would likely be required to provide necessary clarity."
The original bill would have applied to all employers in the state and, for the first time, attempted to regulate all restrictive covenants or non-compete agreements through a law. That proposal would have required that employees, in all circumstances, be allowed 10 business days to review any proposed non-compete agreement. It would have also created a private right of action for employees where an employer fails to comply with the non-compete law.
However, the bill that ultimately passed the legislature would have applied only to situations where companies are merging or being acquired. It would have voided any non-compete agreement signed after October 1, 2013 if the employee was "presented with a non-compete agreement as a condition of continued employment with the employer," and not afforded at least seven days to weigh the fairness of the agreement.
Attorneys representing management were concerned that the law would put non-compete agreements signed before a merger or acquisition in doubt. They also noted that the bill did not include a time limitation as to how long it would apply after a company is involved in a merger or acquired.
"Any company that had a merger would be in doubt about whether its existing non-competes or any other non-compete that it entered in the future were valid," said George O'Brien, managing shareholder in the New Haven office of of Littler Mendelson, a firm that represents employers. "And as a result of that, many people, including the corporate bar and corporate section of the Connecticut Bar Association, were pleased that the governor vetoed it."
The validity of non-competition agreements in Connecticut is currently governed by common law. In deciding whether to enforce such agreements, courts look to five factors: the length of time that an employee's right to compete is restricted; the geographical area covered; the fairness of the protection afforded the employer; the extent of the restraint on the employee's opportunity to pursue his or her occupation; and the extent of interference with the public interest.
Employment lawyers doubt that the issue is dead in Connecticut.
"The developing law across the country is to afford greater protections to employees from agreements that unduly restrict their opportunities to compete in the marketplace," said David Cohen, a partner at Wofsey, Rosen, Kweskin & Kuriansky in Stamford. "At a time of extraordinary unemployment, it's obvious that non-competition restrictions limit the scope of opportunities for employees even further. Our state would do well to adopt a broader protection for employees than the one passed in the recent session and one would hope that the governor would support a sensible regulation." •