Non-competition agreements or “covenants not to compete” are a form of restrictive covenant often found in employment agreements, including in New York and Connecticut. Generally, these provisions bar an employee from engaging in competition with an employer either during or after the period of employment. To employers, non-competes in tandem with other restrictive covenants such as confidentiality and non-disclosure agreements can provide important protections against unscrupulous employees or former employees.
In Connecticut, the enforceability of non-competes agreements is, in most situations, a function of judge-made case law rather than statutory law. Non-competes are generally enforceable only when they are narrowly and reasonably tailored to protect the employer’s interests without unduly interfering with the employee’s ability to pursue his or her occupation and earn a living. Non-competes in certain industries, however (e.g., security guards and broadcast employees), are subject to statutory restrictions and regulations.
The politics surrounding non-competes are rapidly changing throughout the US, as legislatures and courts in many jurisdictions are restricting employers’ ability to require non-competes. This is particularly true with respect to employees in wage-earners or “blue-collar” positions. It is one thing to impose a non-compete on executive or other highly compensated employees, or those having closely kept knowledge and access to sensitive business information. But lawyers and legislators are increasingly asking about other contexts—why should a janitor, deli worker, or hairdresser be subject to a non-compete? Do these really strike an appropriate balance between the interests of the employer and employee? The visceral answer is quite often an emphatic, “No.”
Popular opinion on this subject has changed faster than the law has. But in the wage-earner or blue-collar context, non-competes are increasingly viewed by courts and legislators as an abusive form of “restraint of trade” unfairly benefiting employers while unfairly hurting employees. (Even if a non-compete would ultimately be held unenforceable, employees in this context often have no choice but to comply in the face of threatened litigation, which often starts with the employer’s seeking temporary, “emergency” restraining orders based on a showing the employer’s has legitimate interests at stake and will suffer immediate and “irreparable” harm absent a restraining order.)
In general, non-competes are a function of state law – courts interpret them by reference to state-specific, judge made law or based on any applicable state statutes. This week, two US Senators wrote to the Federal Trade Commission to revisit and move forward with a federal rule to “restrict the use of non-compete clauses” that has been under consideration by the FTC. The letter cites inconsistencies among the states and within states, citing evidence that non-competes are used by employers even in California, where non-competes are unenforceable.
The possibility of federal action including FTC action had been raised before the COVID-19 crisis, which has dramatically impacted millions of workers who may now face non-compete problems when seeking a new position. Although the letter in some respects focuses on healthcare workers, it asks the FTC broadly to “pursue emergency action to limit the enforcement of non-compete agreements during and after the COVID-19 public health emergency.”
These issues including the possibility of federal action affecting non-competes should be monitored both by employers and employees and their attorneys.
This content is provided as background and does not constitute legal advice. For more information or to schedule a free consultation, contact us at info@lalorattorneys.com / 646.818.9870.
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