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Non-Compete Bill Vetoed--But Not Dead

July 17, 2013

The Connecticut General Assembly passed House Bill No. 6658  (“An Act Concerning Employer Use Of Noncompete Agreements”) at the end of its session. House Bill 6658 could have invalidated many non-compete agreements that employers use to protect their companies from unfair competition by former employees. The bill provided that in the event of a merger or acquisition, a non-compete agreement with an employee affected by the transaction that was “entered into, renewed or extended after October 1, 2013” would only be valid if the employee was given at least seven days to consider “the merits of entering into the agreement.”  Recognizing that the bill was full of ambiguities, Governor Malloy vetoed it.

 The bill was unclear as to whether it applied only in the case of a full-fledged acquisition, or applied as well to a transfer of less than a 100% interest in an employing entity. It also didn’t address how it would effect employees of an out-of-state employer; whether it applied to an entity that wasn’t “engaged in business” (such as a non-profit organization); and whether it had any impact on restrictive covenants other than non-compete agreements, such as non-solicitation or non-disclosure requirements.

 The proposed legislation did provide for the waiver of the seven-day waiting period if an employee did so in a “separate writing,” but it did not explain what a separate writing was, whether an employer could require an employee to execute such a waiver as a condition of continued employment, or whether such a waiver could be signed in advance of renewing or extending a non-compete agreement, thereby effectively nullifying the impact of the bill.

 On July 12, 2013, Governor Malloy returned House Bill 6658 to the Secretary of State without his signature stating that “this bill has the potential to produce legal uncertainty and ambiguity in the event of a merger or acquisition. If signed into law, costly and time-consuming litigation would likely be required to provide necessary clarity.”  

We expect that this bill will be back for consideration in a modified form next year. 

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