SB 906 — AN ACT CONCERNING NONCOMPETE AGREEMENTS.

(b) ThisAn sectionexclusivity shallagreement notmay applybe whenpermitted theif worker'sa worker having an additional job, supplementing theirhis or her income by working for another employer, working as an independent contractor,contractor or being self- employed would:

or (2) substantially interfere with the reasonable and normal scheduling expectations of the employer or contractor.contractor, provided on-call shift scheduling shall not be considered a reasonable scheduling expectation for the purposes of this subdivision.

(c) ThisThe provisions of this section shall not be construed to alter any obligations of an employee to an employer under existing law, including, but not limited to, the common law duty of loyalty and laws preventing conflicts of LCOinterest No.and any corresponding policies addressing such obligations.

3466sSB906 5/ ofFile 8No. Raised Bill No.906 interest and any corresponding policies addressing such obligations.

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402 Sec.

The party required to continue to compensate an employee or independent contractor in an agreement under subsection (c)(d) of section 2 of this act shall have the burden of proof in any proceeding to enforce such requirement to continue to compensate such employee or independent contractor.

(b) TheNo provisionscourt ofshall anyjudicially contractmodify or agreement constituting a covenant not to compete orthat exclusivityviolates agreementthe mayprovisions beof heldsections partially1 enforceable only to the3, extentinclusive, thatof suchthis provisionsact, constitutein aorder combinationto ofpartially severalenforce distinctsuch covenants.covenant.

A(c) covenantAny intendedseverable byprovisions theof partiesany contract or agreement that includes a covenant not to becompete or an entiretyexclusivity mayagreement onlythat beis held fullyunenforceable enforceableunder the provisions of sections 1 to 3, inclusive, of this act, shall remain in full force and effect, including, but not limited to, any provisions that require the payment of damages resulting from any injury suffered by reason of termination or unenforceable.separation of employment.

(c)(d) AnyThe severableAttorney provisionsGeneral, ofon anybehalf contractof or agreement that includes a covenantworker notor toworkers, compete or anany exclusivityworker agreementaggrieved thatby isa heldviolation unenforceableof underany theprovision provisions of sections 1 to 3, inclusive, of this actact, shallmay remainbring ina fullcivil forceaction andin effect, including, but not limited to, any provisions that require the paymentSuperior ofCourt damagesfor resulting from any injuryand sufferedall byrelief reasonprovided ofin terminationthis orsection. separation of employment.

(d)(e) TheIf Attorneya General,court onor behalfan ofarbitrator determines that a workercovenant ornot workers,to compete or an exclusivity agreement violates any workerprovision aggrievedof bysections a1 violationto 3, inclusive, of this sectionact, maythe bringviolator ashall civilbe actionliable infor the Superiorgreater Courtof forthe anyaggrieved andworker's allactual reliefdamages providedor a penalty of five thousand dollars, in thisaddition section.to reasonable attorney's fees, expenses and court costs.

In(f) suchNotwithstanding actions,section 31-69a of the plaintiffgeneral shallstatutes, carryno theemployer, burdenofficer, ofagent proofor byother aperson preponderancewho violates any provision of this section shall be liable to the evidence.Labor Department for a civil penalty.

(e)sSB906 If/ aFile courtNo. or arbitrator determines that a covenant not to compete or an exclusivity agreement violates this section, the violator is liable for the greater of the aggrieved worker's actual damages or a statutory penalty of five thousand dollars, in addition to reasonable attorney's fees, expenses and court costs.

LCO402 6 sSB906 File No.

3466402 6Sec. of 8 Raised Bill No.

906 (f) Notwithstanding section 31-69a of the general statutes, no employer, officer, agent or other person who violates any provision of this section shall be liable to the Labor Department for a civil penalty.

Sec.

2 July 1, 2021 New section July 1, 2021 Sec.

3 July 1, 2021 New section Sec.

5 July 1, 2021 31-50a LCOStatement No.of Legislative Commissioners:

3466In 7Section 1(3), "20-14p, 20-681 or 31-50b" was changed to 20-14p or 20- of 8the Raisedgeneral Billstatutes No.or as described in section 31-50b" for accuracy and consistency with standard drafting conventions;

906in StatementSection of1(5), Purpose:sSB906 / File No.

To402 set7 certainsSB906 requirementsFile forNo. covenants not to compete.

[Proposed402 deletions"their" arewas enclosedchanged into brackets."the worker's" for clarity and consistency with standard drafting conventions;

Proposedin additionsSection are1(8), indicated"calendar" bywas underline,added exceptbefore that"year" whenfor theclarity; entire text of a bill or resolution or a section of a bill or resolution is new, it is not underlined.] LCO No.

3466in 8Section of1(10) 8"at" was changed to "in" for clarity and accuracy;

in Section 2(a)(2), "nondisclosure agreement, nonsolicitation agreement" was changed to "nondisclosure or nonsolicitationagreement"forconciseness;Section2(a)(5)wasrewritten for clarity;

in Section 2(a)(6)(B), "in subdivision (4) of this subsection" was changed to "provided in subsection (b) of this section" for accuracy;

in Section 2(a)(7), "between the worker and the employer or contractor" was added after "relationship" for clarity;

in Section 2(a)(10), "Connecticut" was changed to "this state" for consistency with standard drafting conventions;

in Section 2(a)(11), "the provisions of" was inserted before "this" for clarity;

in Section 2(b), "Even if otherwise valid under the provisions of this section" was deleted for consistency with standard drafting conventions and "not be enforceable" was changed to "be unenforceable" for clarity;

in Section 2(c), "Even if otherwise valid under this section" was deleted for consistency with standard drafting conventions;

Section 3(a) was divided into Subdivs.

for clarity;

in Section 3(b), "This section shall not apply when" was changed to "An exclusivity agreement may be permitted if" for clarity;

in Section 3(c), "The provisions of" was added before "This section" for accuracy and consistency with standard drafting conventions;

in Section 4(a), "subsection (c)" was changed to "subsection (d)" for accuracy;

in Section 4(e), "statutory" was deleted for consistency with standard drafting conventions.

LAB Joint Favorable Subst.

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402 The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose.

In general, fiscal impacts are based upon a variety of informational sources, including the analyst’s professional knowledge.

Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note State Impact:

Agency Affected Fund-Effect FY 22 $ FY 23 $ Resources of the General Fund GF - Potential Minimal Minimal Revenue Gain Note:

GF=General Fund Municipal Impact:

None Explanation The bill, which sets limits on the use of covenant not to compete provisions in employment contracts, results in a potential minimal revenue gain to the extent there are violations and a court imposes penalties.1 The bill allows aggrieved parties to bring an action before Superior Court over alleged violations, which does not result in any cost impact.

The court system disposes of over 400,000 cases annually and the number of cases is not anticipated to be great enough to require additional resources.

The billhasno cost impact to thestateor municipalities asemployers.

To the extent that either the state or municipalities enter into non- compete contracts with their employees, the bill is not anticipated to change the cost of any such contract.

The Out Years 1Under the bill a 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.

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402 The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

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402 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’sprovisionsdonot applytononcompete clausesthat existing law prohibits in employment agreements for physicians, broadcast sSB906 / File No.

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402 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) makes 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 sSB906 / File No.

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402 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.

containastatementoftheworker’snoncompeteagreement 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.

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402 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 NONCOMPETES 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) homemakers, 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 sSB906 / File No.

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402 noncompete agreement, at least three times the state hourly minimum wage.) EXCLUSIVITY AGREEMENTS 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 AGREEMENTS 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.

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402 Under the bill a “nonsolicitation agreement” means a contract or 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 sSB906 / File No.

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402 includesprovisionsonseverability.It specifies that anoncompete found to be unenforceable does not invalidate other parts of the 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) sSB906 / File No.

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