WHERE ARE WE WITH NON-COMPETES?
As I practice law in both New York and Connecticut, I have a vantage point in which I constantly compare the law of both jurisdictions. In New York, there is settled law in the federal courts that interprets covenants not to compete arising under New York law very favorably for employees. It is not overstating the case to note that many federal judges in the Eastern and Southern Districts of New York have refused to enforce covenants not to compete against employees who were terminated without cause. Thus, in New York, when an employee is terminated by his or her employer for no fault of his or her own and they go to work for a competitor even though they signed a non-compete agreement, the ex-employer may not be able to enforce that agreement should the matter be litigated before a federal judge. New York State court judges are increasingly relying on federal decisions that show hostility towards non-competes. In addition to this evolution of caselaw in both federal and state courts in New York, the current Attorney General of New York has frequently expressed a hostility towards covenants not to compete, especially their misuse with respect to employees who had no access to protectable interests of employers like trade secrets, business plans and client lists. See Non-Compete Agreements in New York State: Frequently Asked Questions. non-competes.pdf (ny.gov). Now the Federal Trade Commission has weighed in and is proposing a rule that would ban non-compete agreements altogether. See Fact Sheet: FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition. Fact Sheet: FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition. Before employees start jumping for joy, however, it has to be noted that the Chamber of Commerce has vowed opposition to the proposed rule by challenging it in federal court. It is likely that the rule, even if passed, will not be enforced for years to come as it is certainly going to be challenged all the way up to the Supreme Court.
Against this backdrop of growing hostility towards non-compete agreements, there is Connecticut. My colleague, Josh Goodbaum, has a very helpful tutorial about non-competes that employees facing the threat of enforcement of a non-compete should review. Non-Compete Agreements in CT | What You Should Know - Garrison Law. Suffice it to say, Connecticut remains pretty old school when it comes to enforcing non-competes, i.e., courts tend to enforce them, as long as employers do not have outrageously broad geographic and temporal scopes, by which I mean they refrain from prohibiting ex-employees from working for a competitor anywhere in the world for more than two or three years. An interesting recent challenge to a non-compete agreement in Connecticut court was based on the proposition that it was insufficient consideration for an employer to offer continued employment to an at-will employee as “consideration” for agreeing to a fairly standard non-compete agreement. The Connecticut Appellate Court held in Schimenti Construction Co. LLC v. Schimenti, 2023 WL 175471 (App. Ct. Jan. 17, 2023) that the offer of continued employment to an at-will employee was, in fact, sufficient consideration to support the parties’ non-compete agreement. Thus, Connecticut law remains squarely on the side of employers when it comes to enforcing non-compete agreements. The lesson here is that in Connecticut non-competes are here to stay for the foreseeable future and if you are asked to sign one when commencing employment or negotiating a severance you should confer with an employment attorney who can advise you as to the obligations to which you are agreeing. When it comes to non-compete and/or non-solicit agreements, proceed with due caution and confer with an attorney.
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