As a business owner, it is important to know if your franchise or employee non-compete agreement is legally enforceable. A non-compete agreement provides business owners with the security they need to hire qualified, high-level staff. They give you clear, concise boundaries that allow you to grow your business in confidence.
Including a non-compete agreement in your franchise or employee contract is common practice (and recommended) for employers. If your business has a non-compete clause included in the terms of employment, find out if you meet the legal standards set by the Connecticut court.
What is a Non-Compete Clause?
Limited restrictions on competition by employees after the termination or expiration of their tenures with their employer or franchisor are commonplace across the nation in a vast number of businesses. Connecticut, like most jurisdictions, is hospitable to these restrictions if they are reasonable, meeting the standards set forth by the Connecticut Supreme Court.
This article focuses on the non-compete law in Connecticut and how recent cases have implemented Connecticut non-compete standards. Nearly all of the examples provided below are employee cases. However, there are important franchise precedents that should help guide Connecticut franchisors when drafting their non-compete agreement as well. In general, all of these cases are driven by their own facts, but the standard legal principles apply.
The Basic Framework of Non-Compete Agreements
The Connecticut Supreme Court set forth in Deming v. Nationwide Mutual Insurance Co., 279 Conn. 745, 905 A.2d 623 (2006) and Robert Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525, 546 A.2d 216 (1988), the essential factors a Court considers in determining whether a non-compete is enforceable to restrict post-employment activity. Note that this does not matter which side terminated, or whether the relationship simply expired.
Deming teaches that an employee restraint is reasonable to protect the employer’s legitimate business interests such as trade secrets, customer lists (and goodwill), while protecting the employee’s need to earn a living, and the public interest (an amorphous concept).
Weiss identifies the traditional five factors that are evaluated to determine reasonableness:
- The length of time the restriction operates;
- Scope of the geographic restriction;
- Legitimate needs of the employer;
- Extent of the restraint on the employee’s opportunity to pursue employment;
- Interference with public interest (if any).
For a non-compete agreement to be enforceable, the employer is responsible for satisfying all five factors.*
Recent Employee Non-Compete Cases in Connecticut
For your reference, here is a list of the recent Connecticut Non-Compete Court Cases involving employees:
Entegee, Inc. v. Korwek, 2015 WL 5202902 (D. Conn. September 4, 2015)
The Court enforced by preliminary injunction a one year, fifty mile non-competition restriction against a recruiter. In its discussion it stated that protecting customer information /customer contacts is one of the legitimate interests of a covenant, that time periods of three years or more have been upheld, and geographic areas of an entire state or even the nation or beyond are appropriate in some cases.
Roth Staffing Companies, LP v. Thomas Brown and OEM Staffing, Inc., WL 12122072 (D. Conn. October 16, 2013)
The Court enforced a two year twenty-five mile restriction, holding broadly that “geographic restrictions are reasonable when they protect the areas in which a company does business”. Id at * 10 (citations omitted). The Court also enforced a contract provision which provided the time period was “tolled by the length of time that Brown has breached these provisions”, Id, so that the one year period started when the Court ordered the preliminary injunction enforcing the restrictions.
DeLeo v. Equale and Cirone, LLP, 180 Conn. App 744, 184 A. 3d 1266 (2018)
The Court considered a non-competition covenant that stated the remedy for violation was forfeiture of employee benefits. It ruled the covenant must still be analyzed for reasonableness.
Inco LLC v. Lenehan, 2018 WL 1386221 (Conn. Super Ct. February 20, 2018)
The Court discussed the history of non-competition covenants dating from 1414(!). It denied injunctive relief to prevent the violation, ruling the covenant too broad where the former employee was denied any opportunity to utilize his skills anywhere. It also discussed the Connecticut law that provides a court may “blue pencil” a covenant to make it reasonable and enforceable (by striking out parts), and that some rare decisions have even rewritten covenants (e.g. geographic areas) to make them reasonable and enforceable.
SS&C Technologies Inc. v. Maher, 2015 WL 7270331 (Conn. Super Ct. October 20, 2015)
Evaluating three separate covenants, one a general non-compete, one preventing only solicitation of customers previously dealt with, and one safeguarding proprietary information, the Court enforced the last two. It declined to enforce the general non-compete because that barred the former employee from working anywhere in the world in his specialty, and particularly where his former company was enormous, one of the market leaders, whereas his new employer (also a defendant accused of tortiously interfering with his contract) was a “mouse”.
Sylvan R. Shemitz Designs, Inc. v. Brown, 2013 WL 6038263 (Conn. Super Ct. October 23, 2013)
The Court denied a temporary injunction where the ex-employee had only “niche skills” but was barred from working in any capacity whatsoever for any competitor. The Court recognized it could revise the covenant to make it reasonable but declined to do so where the unreasonable restraint went to the “heart” of the contract.
Webster Bank v. Ludwin, 2011 WL 522050 (Conn. Super Ct. January 7, 2011)
The Court in a financial services case addressed three covenants–a general one year 25 mile non-compete, a non-solicitation clause and a non-disclosure of confidential information clause. Enforcing all by temporary restraining order, the Court also found that the plaintiff had lost $76,000 in lost profits to date due to the violation of the non-compete, and it issued a pre-judgment remedy to safeguard the defendant’s assets pending trial.
Franchise Non-Compete Agreements
The Courts are even more favorable to franchise agreement post-term restrictive covenants, recognizing the harm to franchise systems where a former franchisee competes, even without use of the franchisor’s trademark. In Connecticut, there are relatively few reported cases.
Franchise Non-Compete Cases in Connecticut
Here are three examples of Franchise Non-Compete Court Cases in Connecticut:
- The leading decision in Grease Monkey International v. Watkins, 808 F. Supp 111-118, 120 (D. Conn 1992), where the District Court enforced a covenant preventing a former franchisee of fast-service automobile lubrication system from engaging in the business within 50 miles of his former location for two years.
- Carvel Corp. v. DePaola, 2001 WL 528203 (Conn. Super Ct. April 24, 2001) enforced non-competes in a franchise agreement under both Connecticut and New York law.
- Money Mailer Franchise Corp v. Wheeler, 2008 WL 4415942 (Conn. Super Ct. September 16, 2008) enforced a far-reaching two year, fifty mile covenant from the ex-franchisee’s store and from any other Money Mailer store.
How to Draft an Enforceable Non-Compete Clause
To help, we have put together a list of tips drafters should consider when writing a non-compete agreement. This will help to ensure that your non-compete restrictions are enforceable by law.
7 Tips for Drafting an Enforceable Non-Compete Agreement
Here are seven tips to consider including when drafting a non-compete agreement for your franchise or business.
Tip #1 – Do Not Overreach
Your covenant is reasonable if you can justify it on the witness stand. Instead, you should seek what is truly necessary for your business.
Tip #2 – Make Separate Restrictions
Make each covenant a separate restriction so if one is struck down the Court can uphold the others.
Tip #3 – Stay in your Market
Be sure you intend to continue doing business in the market covered by the restriction.
Tip #4 – Include a Covenant
Include a provision allowing the Court to modify the covenant(s) if it finds any of them overbroad, or to sever a non-enforceable portion and enforce the remainder.
Tip #5 – Provide an Expiration Provision
Be sure to include a provision that the restriction begins at the latest of termination or expiration of the contract or when the franchisee abides by it or a court enforces it.
Tip #6 – Include a Reimbursement Guarantee
Have your drafter include an express right to an injunction without bond.
Tip #7 – Cover your Legal Fees
Include a right to attorney’s and expert’s fees and costs.
*Source: New Haven Tobacco Co., Inc. v. Perrelli, 18 Conn. App. 531, 559 A.2d 715 (1989)
Allan P. Hillman is an attorney at Garcia & Milas Law Firm in New Haven, CT. Mr. Hillman specializes in Franchise and Distribution Law, Trade Regulation and Antitrust Law, Commercial Litigation and Arbitration, Intellectual Property Law, Defamation, and Trade Association Law. He has been ranked as a Super Lawyer for the last consecutive five years (2015-2020). Allan Hillman has been named to Best Lawyers in America 2020 for his Franchise and Distribution legal work.
This publication is for general information purposes only and is not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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