New Connecticut Law Restricts The Use Of Non-Compete Agreements In Acquisitions And Mergers

On the final day of the most recent Connecticut legislative session, the General Assembly passed a bill titled "An Act Concerning Employer Use of Noncompete Agreements" (the Act). Despite the broadly worded title, the ostensibly narrow focus of the Act is to restrict the use of non-compete agreements in the context of mergers and acquisitions. Governor Dannel P. Malloy signed the Act into law on June 24, 2013. The new law, Public Act No. 13-309, will take effect on October 1, 2013.

New Restrictions on the Use of Non-Compete Agreements

The focus of the Act is to restrict the use of non-compete agreements when an employer is acquired by or merged with another employer. Under the Act, when an employee is presented with a non-compete agreement as a condition of continued employment following a merger or acquisition, the non-compete is void unless the employer provides the employee with both a written copy of the agreement and a reasonable period of time to consider the agreement. The Act defines a "reasonable period of time" as not less than seven calendar days.

The new restriction, however, allows an employee to waive the right to this period to consider the non-compete. To be effective, the waiver must 1) be in a writing that is separate from the proposed non-compete agreement, 2) explicitly specify the right being waived, and 3) be signed by the employee prior to execution of the proposed non-compete agreement.

While the Act is supposedly limited to the narrow context of mergers and acquisitions, it is the first broadly applicable statute regulating the use of non-compete agreements under Connecticut law and applies to all employers regardless of size or industry. Until now, Connecticut statutes regulating non-compete agreements were limited to security guards and broadcast employees.1

Unintended Consequences?

Despite the seemingly limited focus of the Act, unintended consequences are possible. It is, for example, unclear what effect the Act will have on existing non-compete agreements when an employer is merged with or acquired by another employer. A facial reading of the Act seems to imply that the new constraints only apply to non-competes "entered into, renewed or extended" post-merger or acquisition. However, the interplay of the different provisions of the Act is confusing and could be construed to mean that any non-compete entered into, renewed or extended after October 1, 2013, is void unless the employer affords the requisite...