Posted by Garrison, Levin-Epstein, Fitzgerald & Pirrotti, P.C. in News
Sep 22 2021
On September 22, 2021, the Editorial Board of the Connecticut Law Tribune published an editorial calling for legislative reform of Connecticut non-compete law. The Connecticut employment lawyers at Garrison, Levin-Epstein join the Board’s call for reform, which we have previously encouraged here. The full text of the editorial appears below.
In its most recent legislative session, the General Assembly considered several bills that would have regulated covenants not to compete—that is, contracts between an employee and an employer that prohibit the employee from engaging in a business that competes with her current employer’s business. None of the bills became law.
We urge the General Assembly to try again.
The enforceability of non-competes in the United States is almost entirely a matter of state law, and in Connecticut, that largely means common law. As that law currently stands, non-competes are enforceable if they are reasonable on each of five factors: (1) the duration of the restriction; (2) the geographical area covered; (3) the interest of the employer in seeking the restriction; (4) the employee’s ability to pursue his occupation; and (5) the public interest.
These factors have not changed since the Connecticut Supreme Court announced them in Scott v. General Iron & Welding Co. in 1976. Remarkably, though, they also have not become any more predictable. Just a few minutes on Westlaw reveals non-compete cases pointing in almost every conceivable direction: cases approving five-year non-competes; cases striking down one-year non-competes; cases approving global non-competes; and cases striking down non-competes covering just a few towns. There are cases holding that an employee must possess confidential information or even trade secrets for a non-compete to stick and cases essentially finding that non-competes are as presumptively valid as any other contract.
For every citation, it seems, there’s an opposite one, too.
Nor is the application of Scott factors the only area of non-compete litigation in which our courts seem confused. Widespread jurisprudential disagreement also reigns on other issues involving non-competes, including whether the continuation of at-will employment is sufficient consideration for a non-compete; whether courts can rewrite overbroad non-competes to make them enforceable (in a process known as “blue penciling”); whether an employer’s breach of a separate employment agreement or commission of unlawful misconduct (such as discrimination or harassment) can render non-competes unenforceable; and whether and when a Connecticut employee can be bound by a non-compete with a choice of law provision mandating the application of another state’s law. Ask two seasoned employment lawyers about any of these issues, and you’ll get three opinions, followed by a resigned shrug of the shoulders.
In short, the law of Connecticut non-competes is a mess, with results resting not on any clear vision of the legal doctrine or its predictable application to the evidence, but on which Superior Court judge happens to draw the case.
That is the opposite of how the common law is supposed to work. Ordinarily, after all, disagreements in a common law area percolate in the trial courts and ultimately are definitively resolved by the appellate courts. But three unusual features of non-compete litigation have frustrated that dynamic, with no end in sight.
First, the average employee usually lacks both the gumption and the resources to determine ex ante whether her non-compete is enforceable. To do so would require her to sue her current employer for a declaratory judgment; indicate clearly that she intends to leave for another opportunity; pay a lawyer thousands of dollars to pursue her case; and tolerate at least three—but often many more—months of delay between the filing and even a preliminary resolution. As a result, the vast majority of employees either decline a competitor’s job offer, for fear of being sued by their former employer and then potentially terminated by that competitor, or they accept the offer and just hope for the best.
Second, many employers decline opportunities to enforce their non-competes, either because the former employee’s “competition” is commercially irrelevant or because they don’t want to risk a judicial declaration that their overbroad non-competes are invalid. They prefer instead to use their non-competes to limit their employees’ exit options (and undermine a principal mechanism for employees to negotiate better terms). From the perspective of most employers, it seems, the prevailing uncertainty about the enforceability of any given non-compete is more benefit than burden. Employers, in short, have learned to use ambiguity to their advantage. (Many employers also or alternatively can use non-solicitation agreements, which are generally viewed less skeptically by courts, to achieve at least some of their aims.)
Third, and perhaps most critically, non-compete cases rarely result in appeals that can establish clear rules or even flesh out amorphous standards. Appeals, of course, take time—rarely occurring fewer than three years after the filing of a civil case. Yet most non-competes last for fewer than three years, so by the time the case would get to an appeal, the non-compete would already have expired by its own terms. Plus, although appeals generally occur only after a dispositive motion is granted or a full trial on the merits, most non-compete cases never reach either terminus. Instead, all the action occurs at the preliminary injunction stage, with the loser usually just giving up or the parties negotiating a settlement based on their new circumstances.
All of this makes non-competes an area of law that is poorly suited—perhaps uniquely so—to common-law development. And that is where the General Assembly comes in. The Legislature should step into the breach to bring at least a modicum of predictability to this area of law by prescribing reasonable geographical and durational limits, placing the burden of proof as to reasonableness on the employer and prohibiting enforcement where employees are involuntarily terminated without cause or resign for a good reason (as the Restatement of Employment Law suggests). The Uniform Law Commission’s draft “Noncompete Agreement Act” would be a good place to start, as would any of the bills the Legislature considered earlier this year. There is much more Connecticut could do to bring sense to non-competes, but any of these measures would be a very productive start.