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OLR Bill Analysis
sHB 6594
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 a worker (employee or independent contractor)
from, or imposes penalties for, engaging in any kind of profession,
occupation, trade, or business in a geographic area for a set 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 after being terminated, and (4) any
contract or agreement made (a) in anticipation of a sale of a business’s
goodwill 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 it
meets specific requirements, including that the covered employee earn
at least three times the minimum wage and be exempt from the state’s
minimum wage laws.
The bill also sets limits on exclusivity agreements, which it defines
as a contract, provision, or 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.
It applies to noncompete and exclusivity agreements entered into,
amended, extended, or renewed on or after July 1, 2023. The bill applies
to private employers as well as state and municipal employers. 2023HB-06594-R000011-BA.DOCX
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The bill’s provisions do not apply to noncompete agreements for two
professions under existing law: (1) physicians and (2) homemakers,
companions, or home health aides. It also sunsets, on June 30, 2023, a
law that prohibits certain noncompete agreements for security guards,
making security guards subject to the bill’s general provisions on
noncompete agreements. (The bill is silent on a fourth type of existing
noncompete law that prohibits noncompete contracts for broadcast
employees.)
EFFECTIVE DATE: July 1, 2023
CONDITIONS FOR NONCOMPETE AGREEMEN TS (§§ 1 & 2)
The bill makes a noncompete agreement between an employer and
worker unenforceable unless specific conditions are met.
Covered Workers
To be enforceable, among other things, a noncompete agreement
must only be applied to workers who are “exempt employees” (i.e.,
those exempt from the state’s minimum wage laws, such as people
employed in a qualifying executive, administrative, or professional
capacity). The workers must be either:
1. employees earning “monetary compensation” (as described
below) of at least three times the state minimum wage; or
2. independent contractors earning monetary compensation of at
least five times the state minimum wage.
Restrictions
Under the bill, to be enforceable noncompete agreements must:
1. be limited to a period of up to one year following the worker’s
termination or separation, except as described below;
2. be necessary to protect the employer’s “legitimate business
interest” that could not reasonably be protected through less
restrictive means, including a nondisclosure agreement, non-
solicitation agreement, or the state Uniform Trade Secrets Act’s 2023HB-06594-R000011-BA.DOCX
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business protections;
3. be no more restrictive than necessary to protect a legitimate
business interest in terms of the agreement’s duration,
geographic scope, type of work, and type of employer;
4. not require the worker to submit to adjudication outside of the
state, or otherwise purport to deprive the worker of the bill’s
protections or benefits; and
5. not unreasonably interfere with the public interest and be
consistent with the bill’s requirements, other state laws, and
public policy.
Under the bill, a “legitimate business interest” is an interest in (1)
protecting trade secrets or confidential information that does not qualify
as a trade secret or (2) preserving established goodwill with the
employer’s customers.
Also, a noncompete agreement is unenforceable if the worker
terminates the employment or contractual relationship for good cause
attributable to the employer or contractor.
Furthermore, under the bill a noncompete agreement must:
1. be provided to the worker in writing at least 10 business days
before the earlier of the (a) deadline for accepting the
employment offer or offer to enter into an independent
contractor relationship or (b) date the agreement is signed;
2. contain a statement of the worker’s noncompete agreement
rights, as described 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 and not be the only basis
for continuing the employment or contractor relationship if the 2023HB-06594-R000011-BA.DOCX
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agreement is added to an existing employment or independent
contractor relationship.
In addition, under the bill, 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 this same period.
Required Statement of Workers’ Rights
Under the bill, the noncompete agreement is not enforceable unless
it contains a statement of the worker’s rights under the agreement,
including that:
1. not all noncompete agreements are enforceable,
2. noncompete agreement for workers who earn less than the
applicable thresholds established in the bill are illegal,
3. workers may contact the attorney general if they believe they are
subject to an illegal noncompete agreement, and
4. they have a right to consult with counsel before signing it.
Definition of Monetary Compensation
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.
Exception to the Duration Limit (§ 2(d))
The bill allows a noncompete agreement to be enforceable for up to 2023HB-06594-R000011-BA.DOCX
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two years if it is part of an agreement under which the worker is paid
his or her “base salary and benefits,” minus any outside compensation,
for the entire period of the noncompete agreement. It defines “base
salary and benefits” as (1) wages earned over the course of the prior
calendar year, excluding any overtime or bonus pay, and (2) health
insurance benefits and other fringe benefits the employee received over
the course of the prior calendar year.
Exclusion for Nonsolicitation Agreements
The bill specifies that nonsolicitation agreements are excluded from
the definition of “covenants not to compete” if they do not restrict a
worker’s activities for more than a year and are not more restrictive than
necessary in the agreement’s duration, geographic reach, type of work,
and type of employer.
Under the bill, a “nonsolicitation agreement” means a contract or
agreement between:
1. an employer and employee that prohibits an employee, upon
separation of employment, from soliciting (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 the customer from
soliciting an employee of the employer to stop or reduce doing
business with the employer.
EXCLUSIVITY AGREEMEN TS (§ 3)
The bill permits exclusivity agreements (i.e., contracts, provisions, or
agreements that restrain a worker from, or penalize him or her for,
simultaneously working for another employer, working as an
independent contractor, or being self-employed) only if the worker is an
(1) exempt employee with monetary compensation, as defined above,
more than three times the state’s minimum wage or (2) independent
contractor with monetary compensation more than five times the state’s
minimum wage.
However, the bill allows exclusivity agreements if the worker’s 2023HB-06594-R000011-BA.DOCX
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additional employment would (1) endanger 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 requires that its exclusivity agreement provisions not be
construed to alter an employee’s obligations to an employer under
existing law. This includes the common law duty of loyalty, laws
preventing conflicts of interest, and any corresponding policies on these
obligations.
ENFORCEMENT (§ 4)
Attorney General’s Authority to Bring Civil Actions
The bill allows the attorney general, on behalf of a worker aggrieved
by a violation of the bill’s noncompete and exclusivity agreement
provisions, to bring a civil action in Superior Court for the relief the bill
provides.
Penalty
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 $5,000 or the aggrieved worker’s actual damages, in addition
to reasonable attorney’s fees, expenses, and court costs. Under the bill,
violators are not liable to the Labor Department for an additional civil
penalty imposed under the state’s wage laws.
Burden of Proof
In any enforcement proceeding, the bill places the burden of proof on
the party seeking to enforce a noncompete or exclusivity agreement
against a worker. In any proceeding to stop compensating a worker
under an agreement in which a worker is paid for the entire period of
the noncompete agreement, the bill puts the burden of proof on the
party required to compensate the worker.
Unenforceable Agreements
The bill prohibits the court from modifying a noncompete agreement
that violates the bill’s provisions to make it enforceable. It also specifies 2023HB-06594-R000011-BA.DOCX
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that if a noncompete or exclusivity agreement is found to be
unenforceable, any severable provisions of a contract of other agreement
that are unrelated to the noncompete agreement remain in full force and
effect. This includes any provisions that require the payment of
damages resulting from any injury suffered by separation of
employment.
EXISTING NONCOMPETE LAWS (§§ 1 & 5)
Current law restricts the use of noncompete agreements in four types
of professions: (1) physicians; (2) homemakers, companions, and home
health aides; (3) security guards; and (4) broadcast employees.
The bill’s provisions do not apply to noncompete agreements covered
under the existing laws for physicians or homemakers, companions, and
home health aides, leaving these existing laws in effect. It creates an end
date, July 1, 2023, for the current limitations on noncompete agreements
for security guards. In doing so, it sunsets the current limitations on
these agreements and instead subjects them to the bill’s general
provisions.
The bill does not contemplate how its provisions on noncompete
agreements interact with those under existing law for broadcast
employees.
COMMITTEE ACTION
Labor and Public Employees Committee
Joint Favorable Substitute
Yea 7 Nay 4 (02/16/2023)