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OLR Bill Analysis
sSB 906
AN ACT CONCERNING NONCOMPETE AGREEMENTS.
SUMMARY
This bill sets limits on the use of covenant not to compete provisions
in employment contracts. Under the bill, a “covenant not to compete”
(i.e., noncompete agreement) means a contract, provision, or
agreement that restrains an employee from, or imposes penalties for,
engaging in any kind of profession, occupation, trade, or business in
any geographic area for a set time period after separation from
employment. The bill excludes from this definition (1) nonsolicitation
agreements that meet certain standards, (2) nondisclosure or
confidentiality agreements, (3) agreements not to reapply with the
same employer, and (4) any contract or agreement made (a) in
anticipation of a sale of the goodwill of a business or all of the seller’s
ownership interest in a business or (b) as part of a partnership or
ownership agreement.
Under the bill, a noncompete agreement is enforceable only if
specific requirements are met, including that the employee must earn
at least three times the minimum wage.
The bill also sets limits on exclusivity agreements, which it defines
as an agreement that imposes penalties on a worker for, or restrains a
worker from, supplementing his or her income by working for another
employer, working as an independent contractor, or being self-
employed.
The bill applies to noncompete clauses and exclusivity agreements
entered into, amended, extended, or renewed on or after July 1, 2021.
The bill’s provisions do not apply to noncompete clauses that
existing law prohibits in employment agreements for physicians, 2021SB-00906-R000402-BA.DOCX
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broadcast employees, and home health aides. It also sunsets, on June
30, 2021, a law that prohibits certain existing noncompete agreements
for security guards.
EFFECTIVE DATE: July 1, 2021
NONCOMPETE AGREEMENT REQUIREMENTS
The bill (1) prohibits employers and contractors from requesting or
requiring a worker (i.e., employee or independent contractor) to sign
or agree to a noncompete agreement and (2) m akes any such
agreement unenforceable unless several conditions are met. A
noncompete agreement is unenforceable if the employment or
contractual relationship was terminated by the worker for good cause
attributable to the employer or contractor.
To be enforceable, among other things, a noncompete agreement
must:
1. only be applied to (a) exempt employees earning monetary
compensation of more than three times the state minimum
hourly wage or (b) workers who are independent contractors
earning monetary compensation of more than five times the
state minimum fair wage;
2. be limited to a period of no more than one year following the
employee’s termination or separation;
3. be necessary to protect the employer’s legitimate business
interest that could not reasonably be protected through less
restrictive means, including a nondisclosure agreement,
nonsolicitation agreement, or the business protections under the
state Uniform Trade Secrets Act;
4. be no more restrictive than necessary to protect such business
interest in terms of the agreement’s duration, geographic scope,
type of work, and type of employer;
5. not require the worker to submit to adjudication outside of the 2021SB-00906-R000402-BA.DOCX
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state, or otherwise purport to deprive the worker of the bill’s
protections or benefits; and
6. not unreasonably interfere with the public’s interests and be
consistent with the bill’s requirements, other state laws, and
public policy.
Under the bill, “monetary compensation for exempt employees”
means wages earned over the course of the prior calendar year, or
portion of that year, for which the employee was employed,
annualized based on the employment period and calculated as of the
earlier of the (1) date enforcement of the noncompete agreement is
sought or (2) date of separation from employment. For independent
contractors, “monetary compensation” means payments for services
rendered, annualized based on the period during which the contractor
provided services and calculated as of the earlier of the (1) date
enforcement is sought or (2) date of separation from employment.
Requirements Related to Signing the Agreement
To be enforceable, the noncomplete agreement must also:
1. be provided to the worker in writing no later than 10 business
days prior to the earlier of (a) the deadline for accepting the
offer of employment or the offer to enter into an independent
contractor relationship or (b) the date the agreement is signed;
2. contain a statement of the worker’s noncompete agreement
rights (see below);
3. be signed by the worker and the employer or contractor
separately from any other agreement underlying the
relationship; and
4. be supported by sufficient consideration independent from
continuation of the employment or contractor relationship, if
the agreement is added to an existing employment or
independent contractor relationship. 2021SB-00906-R000402-BA.DOCX
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Statement of Worker’s Rights
The bill requires any noncompete agreement to include a statement
of the worker’s rights that provides the following information:
1. not all noncompete agreements are enforceable,
2. noncompete agreements for workers and independent
contractors earning less than the minimum stated in the bill are
illegal,
3. the worker may contact the attorney general if the worker is
subject to an illegal noncompete agreement, and
4. the worker has the right to consult legal counsel prior to signing
the noncompete agreement.
OTHER GENERAL REQUIREMENTS
Under the bill, even if all the above conditions are met, a
noncompete agreement is presumed unenforceable if it applies to (1)
geographic areas in which the employee neither provided services nor
had a material presence or influence within the last two years of
employment or (2) types of work that the employee did not perform
during the last two years of employment.
EXCEPTION TO THE DURATION LIMIT FOR NONCOMP ETES
The bill allows a noncompete agreement to be enforceable for up to
two years if the worker is paid his or her base salary and benefits,
minus any outside compensation, for the entire period of the
noncompete agreement.
EXISTING NONCOMPETE LAWS
The bill leaves noncompete laws in effect for three professions: (1)
physicians, (2) broadcast employees, and (3) homemaker s,
companions, or home health aides. It creates an end date for another
one (security guards), thus sunsetting existing limitations on the use of
noncompete clauses in security guard employment agreements. (In
practice, most security guards earn less than the wage threshold
necessary to have a noncompete agreement, at least three times the 2021SB-00906-R000402-BA.DOCX
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state hourly minimum wage.)
EXCLUSIVITY AGREEMEN TS
The bill permits exclusivity agreements under certain conditions. It
defines an “exclusivity agreement” as a contract or agreement entered
into or renewed on or after July 1, 2021, that restrains a worker from,
or imposes penalties on a worker for, supplementing his or her income
by working for another employer, working as an independent
contractor, or being self-employed.
An employer or contractor may request or require a worker to sign
or agree to an exclusivity agreement only if the worker is an exempt
employee earning more than three times the state’s minimum fair
wage or is an independent contractor earning more than five times the
state’s minimum fair wage.
The bill’s conditions do not apply when the worker supplementing
his or her income by working for another employer, working as an
independent contractor, or being self-employed would (1) imperil the
safety of the worker, the worker's coworkers, or the public or (2)
substantially interfere with the employer or contractor’s reasonable
and normal scheduling expectations, which excludes on-call shift
scheduling.
The bill specifies the exclusivity agreement provisions cannot be
construed to alter an employee’s obligations to an employer under
existing law, including the common law duty of loyalty and laws
preventing conflicts of interest and any corresponding policies related
to the obligations.
NONSOLICITATION AGRE EMENTS
The bill specifies that nonsolicitation agreements are excluded from
the definition of noncompete agreements only if they do not restrict a
worker for more than a year and are not more restrictive than
necessary in the agreement’s duration, geographic reach, type of work,
or type of employer.
Under the bill a “nonsolicitation agreement” means a contract or 2021SB-00906-R000402-BA.DOCX
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agreement between:
1. an employer and employee that prohibits solicitation by an
employee, upon termination of employment, of ( a) any
employee of the employer to leave or (b) any customer to cease
or reduce doing business with the employer or
2. an employer and any customer that prohibits solicitation by the
customer of an employee of the employer to cease or reduce the
extent to which it is doing business with the employer.
ENFORCEMENT
Under the bill, the attorney general, on behalf of a worker or
workers, or any worker aggrieved by an alleged violation of the bill
may bring a lawsuit in Superior Court for any and all relief the bill
provides. In such actions, the plaintiff’s burden of proof is by a
preponderance of the evidence.
If a court or arbitrator determines that a noncompete agreement or
an exclusivity agreement violates the bill, the violator is liable for the
greater of the aggrieved worker's actual damages or a $5,000 statutory
penalty, in addition to reasonable attorney's fees, expenses, and court
costs. Violators under the bill are not liable to the Labor Department
for a civil penalty.
In a proceeding to enforce an agreement, the bill places the burden
of proof on the party seeking to enforce a noncompete agreement or an
exclusivity agreement against a worker.
The bill prohibits the court from modifying a noncompete
agreement to make it partially enforceable if the agreement violates the
provisions of the bill.
SEVERABILITY
Since noncompete agreements may be part of a larger employment
contract that also addresses other issues, such as compensation, the bill
includes provisions on severability. It specifies that a noncompete
found to be unenforceable does not invalidate other parts of the 2021SB-00906-R000402-BA.DOCX
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contract. This includes any provisions that require the payment of
damages resulting from any injury suffered by reason of termination
or separation of employment.
COMMITTEE ACTION
Labor and Public Employees Committee
Joint Favorable Substitute
Yea 10 Nay 3 (03/23/2021)