Courts Cannot Extend Expired Non-Compete Agreements Under Connecticut Law

Ms. Harumi Aoto Donoyan worked as a Senior Managing Director for Japan Sales and Marketing at Aladdin Capital Holdings, LLC, a boutique investment bank in Stamford, Connecticut.  The firm promoted her to this position in 2008 contingent on executing a restrictive covenant wherein she promised not to complete with the firm following termination while she continued to receive compensation and other benefits from the firm.  Aladdin terminated Ms. Donoyan in April 2010 with the agreement that she would receive her full salary and benefits through May 5, 2011.  This arrangement made prohibitions in the non-compete effective until May 5, 2011 since the restrictions were applicable while she received benefits from the firm.

Aladdin alleged that Ms. Donoyan engaged in activities that amounted to competing with the firm while she was still receiving a salary and benefits.  It filed a suit in federal court on April 25, 2011 and served Ms. Donoyan on April 28, 2011, ten and seven days respectively before the expiration of the restrictive covenant.

The case reached the federal district court in June 2011, well after the non-compete agreement had expired.  Aladdin asked the court to declare that Ms. Donoyan had breached the agreement and issue an injunction prohibiting any further violations.  The court noted that the request for injunctive relief was moot since the time restriction had already expired.

The Court’s Analysis

The court did however analyze its authority as a court sitting in equity to extend the duration of a restrictive covenant as a remedy for a previous breach of a non-compete agreement.  Restrictive covenants can have built-in provisions that extend the time restriction upon a breach by the former employee.

This however, was not the case with the dispute before the court and the only way for the time restriction to be extended was for the court to unilaterally amend the agreement.  While some states’ highest courts have held that the lower courts have “broad equitable power to extend even an expired restrictive covenant as a remedy for breach”, the federal court here did not see any evidence that the Connecticut Supreme Court held this legal stance.

In light of this, the federal court held that it lacked the authority under Connecticut state law to extend an expired non-compete agreement.  The federal court’s holding with regard to this issue was that “a request for injunctive relief based on a restrictive covenant becomes moot upon the expiration of the period specified in the parties’ restrictive covenant, unless the restrictive covenant contains language that expressly permits extension of the restrictive covenant”.  Aladdin could have placed an automatic extension mechanism in its non-compete agreement but chose not to do so.

Even though the court acknowledged that Ms. Donoyan had in fact breached the non-compete agreement, it ultimately denied Aladdin’s request to extend and enforce the restrictive covenant based on the fact it lacked the authority to do so under Connecticut law.

Maya Murphy P.C. has proudly been included in the 2024 Edition of Best Law Firms®, ranked among the top firms in the nation. In addition, Managing Partner Joseph C. Maya has been selected to The Best Lawyers in America® 2024 for his work in Employment Law and Education Law in Connecticut. Recognition in Best Lawyers® is awarded to firms and attorneys who demonstrate excellence in the industry, and is widely regarded by both clients and legal professionals as a significant honor.

Our firm in Westport, Connecticut serves clients with legal assistance all over the state, including the towns of: Ansonia, Beacon Falls, Bethany, Bethel, Branford, Bridgeport, Brookfield, Cheshire, Danbury, Darien, Derby, East Haven, Easton, Fairfield, Greenwich, Guilford, Hamden, Madison, Meriden, Middlebury, Milford, Monroe, Naugatuck, New Canaan, New Fairfield, New Haven, Newton, North Branford, North Haven, Norwalk, Orange, Oxford, Prospect, Redding, Ridgefield, Seymour, Shelton, Sherman, Southbury, Stamford, Stratford, Trumbull, Wallingford, Waterbury, West Haven, Weston, Westport, Wilton, and Woodbridge. In addition to assisting clients in Connecticut, our firm handles education law and employment law matters in New York as well. 

If you have any questions about employment law or education law in Connecticut, or would like to speak to an attorney about a legal matter, please contact Joseph C. Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation today.