I. INTRODUCTION
Employment is the lifeblood of personal and professional self-esteem, and the lifeline by
which to support one’s family. Employment mobility is more important than ever as our country
faces uncertain economic times. Employment is conceptually simple: a business entity requires
certain services and hires employees to meet its needs. Often the priorities and concerns of the
employer and the employee will diverge. Both, however, wish to be protected from adverse
consequences upon termination of the employment relationship. The employer seeks protection
from a former employee engaging in actions harmful to the company, while the employee wants
free rein to secure new employment. Employer protection often takes the form of restrictive
covenants, of which “non-competition agreements” are perhaps the best known.
II. NON-COMPETES AS CREATURES OF CONTRACT
The touchstone of an employer-employee relationship is the employment contract, a
document that can take as many forms as there are jobs to fill. They frequently have many of the
same sections: identification of the parties, the specific employment position, location, term (if
any), duties, compensation, and restrictive covenants. Restrictive covenants protect the interests
of the employer by restricting the activities of an employee upon termination and can take
several forms, including “confidentiality clauses,” “non-solicitation clauses,” or “noncompetition
clauses” a/k/a “covenants not to compete.” A covenant not to compete is the most
common legal vehicle to preclude a former employee from obtaining new employment that
would likely cause the company to suffer adverse consequences. While Connecticut law pays lip
service to the notion that “every contract, combination, or conspiracy in restraint of any part of
trade or commerce is unlawful,”1 the courts have enforced restrictive covenants as long as they
2
are reasonable in temporal and geographic scope and provide the employer with no more
protection than it reasonably requires.
Restrictive covenants are contractual provisions to which signatory parties agree and
intend to be legally bound. Courts have justified their role in enforcing restrictive covenants by
enunciating a policy statement that “to permit a party who has voluntarily entered into such an
agreement, for a valuable consideration perhaps in large part based on it, to escape the
consequences of his acts… smacks of unfairness and savors of an encouragement to
dishonesty.”2
Courts view it as unconscionable to permit a party to avoid contractual obligations
contained in an enforceable agreement that he willingly entered into and from which he received
a sufficient benefit. This policy is based on the idea of “fairness” and is meant to discourage
contractual breaches. A crucial factor in a court asserting its power to enforce a restrictive
covenant is that the underlying agreement must itself be valid and enforceable.
A. Consideration for the Covenant Not to Compete
An enforceable contract requires the parties to experience a respective benefit or
detriment that they would not otherwise receive or suffer in association with the terms and
conditions they agree to, a legal concept referred to as “consideration.” This essential element of
a contract is defined as “any benefit conferred, or agreed to be conferred, upon the promisor, by
any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or
agreed to be suffered, by such person, other than such as he is at the time of consent lawfully
bound to suffer, as an inducement to the promisor. . . .”3
The employee gives the employer his
time, energy and resources in exchange for a variety of benefits, including salary, healthcare,
401(k), severance package, and bonuses. The existence and adequacy of consideration is crucial
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to the validity of an employment contract: “the doctrine of consideration is fundamental to the
law of contracts, the general rule being that in the absence of consideration an executory promise
is unenforceable.”4
Under Connecticut law, courts may refuse to enforce a restrictive covenant
when the contract lacks bargained-for and sufficient benefits or detriments.5
It is customary (but not necessary) for the ebb and flow of consideration between the
parties to be detailed and acknowledged in the employment agreement. Courts have been open
to accepting evidence of an oral agreement to establish the requisite consideration. Affidavits
have been used to prove an oral agreement whereby an employee consented to signing a noncompete
agreement in exchange for a promotion or other form of benefit associated with his
employment.
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Under certain circumstances, oral agreements have been similarly upheld.
(i) At Will Employment
A more complex sub-issue with respect to consideration is determining what is
“adequate” in order to validate and render an employment agreement enforceable. Under
Connecticut law, the standard differs depending on whether or not the employee is classified as
an “at-will employee.” This classification has distinct attributes with regard to the adequacy of
consideration and will be scrutinized by the courts.
The state of Connecticut adheres to the “At-Will Employment Doctrine.” “[I]n
Connecticut, an employer and employee have an at-will employment relationship in the absence
of a contract to the contrary,” that “grants parties the right to terminate the relationship for any
reason, or no reason, at any time without fear of legal liability.”7
At-will employment is the
default employment relationship unless the parties contractually declare otherwise. Permanent
employment is classified as an “indefinite general hiring” where either party may terminate the
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employment relationship without liability to the other when there is not a contract specifying
consideration for the services to be rendered in conjunction with employment.8
This At-Will
Employment Doctrine is subject to certain limitations and restrictions under Connecticut law as
further informed by public policy. Courts may recognize and grant an exception to the doctrine
when a termination is otherwise a clear violation of public policy.9
(ii) Other than “At Will” Employment
The bar is set considerably higher for employers that provide employees with a contract
of employment and the courts are more demanding in what they will deem “adequate
consideration” to bind the parties to the employment and non-compete agreement. If the noncompete
agreement or the employment contract containing a restrictive covenant is executed
prior to the employee commencing work, there is a prima facie case for adequate consideration
flowing from the clauses stipulating the employee’s compensation and other employment-related
benefits. There is an issue, however, when the parties execute a non-compete agreement after
employment has begun and the employer brings an action to enforce the non-compete provision.
In Connecticut, for other than at-will employees, continued employment alone is insufficient
consideration and there must be a new and adequate defined benefit to make the non-compete
agreement binding.10 The courts require that the employer confer a new/enhanced benefit upon
the employee in order to induce him to additionally covenant post-employment to abstain from
certain activities. It is a well-settled facet of Connecticut employment law that with respect to
other than “at will” employees, “continued employment is not [adequate] consideration for a
covenant not to compete entered into after the beginning of the employment.”11
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(a) Past Consideration
As a corollary, consideration offered when executing one contract cannot be carried
forward and applied to subsequent contracts so as to render both contracts valid and enforceable.
Past consideration is for the same reason inadequate to support a restrictive covenant sought to
be imposed after employment begins12 or to support the imposition of a new contractual
obligation on an employee after the commencement of work pursuant to an employment
agreement.
13 A court may decline enforcement of a restrictive covenant against a non-”at-will”
employee when the only consideration was continued employment by the plaintiff employer.
14
The situation is different when an employee is classified as “at-will” with the bar set
much lower for a court to find “adequate consideration”. Connecticut has historically accepted
continued employment as adequate consideration for the imposition of new obligations under a
restrictive covenant after employment has begun. This principle applies to both state and federal
courts located in the state of Connecticut, as the federal court has specifically acknowledged that
“Connecticut recognizes that continued employment is adequate consideration to support noncompete
covenants with at-will employees.”15 The policy underlying the different treatment of
“at-will” employees is based upon the fundamental nature of “at-will” employment. Under this
employment relationship, the employer at any time it sees fit has the right to terminate the
employee for any reason, or no reason at all. The prospect of continued employment as
consideration for a non-compete is viewed as a new bargaining event where new benefits are
offered and conferred upon the parties. The employer receives services and benefits associated
with the restrictive covenant while the employee receives continued employment, a benefit he is
not otherwise entitled to under the existing employment relationship.
16 As a practical matter,
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however, all the employee receives is the employer foregoing its right for yet another day to fire
the employee for good cause, bad cause, or no cause at all.
B. Signatures
A second issue that can affect a non-compete’s enforceability is absence of the signatures
of the parties. Several issues can arise when a contract is not signed by both parties at the same
time, when one party fails to sign altogether, or when a party questions in good faith whether he
signed the agreement at all. The employer and the employee must sign the non-compete
agreement to make it legally binding when the agreement is clearly a bilateral contract.
17 A
purported written agreement can be rendered unenforceable if one party fails to sign.
Agreements stipulating that the signatures of both parties are necessary do not become legally
binding until both of the parties have actually affixed their signatures to the document.
18 Parties
have occasionally argued that they “intended to sign” the agreement, but this position has been
rejected and courts have held that “intent to sign” is not a substitute for an actual signature.19 A
separate issue arises when both parties apparently sign the restrictive covenant but one of them
cannot recall if they actually did so and for that reason questions the enforceability of the
agreement. Where a party disputes or cannot recall signing, the courts have accepted testimony
from handwriting experts to ascertain the validity of the signatures on the non-compete
agreement.
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C. The Need for a “Meeting of the Minds”
There must be in fact a meeting of the minds with regard to the contractual terms and
conditions in order to create an enforceable agreement between the parties. Courts have held that
“in order to form a binding and enforceable contract, there must exist an offer and an acceptance
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based on a mutual understanding by the parties…The mutual understanding must manifest itself
by a mutual assent between parties.”21 This requirement means that “it is not the subjective
meeting of the minds, but the objective manifestation of mutual assent, that is essential to the
making of a contract.”22 The parties are presumed to have had a “meeting of the minds” in the
opinion of the court when the language in the contract is clear and unambiguous in articulating
the contractual clauses.
A party may challenge the agreement and argue that it is invalid and unenforceable
because of ambiguous language that fails to demonstrate the requisite meeting of the minds.
Courts, however, are reluctant to invalidate a non-compete agreement based upon one party’s
subjective interpretation of the contractual language. The courts “will not torture words to
import ambiguity where the ordinary meaning leaves no room for ambiguity”23 and have further
stated that “any ambiguity in a contract must emanate from the language used in the contract
rather than from one party’s subjective perception of the terms.”24 Words and phrases in
contracts are given their ordinary, plain meaning and courts will not construe their meaning to
favor one party’s interpretation over the other.
There may be cause to invalidate a restrictive covenant, however, when its provisions
transcend mere ambiguity and call into question such essential contractual elements as the
identification of parties, dates, and terms.25 Where multiple versions of an agreement exist and
they contain material discrepancies, courts are inclined to conclude that there is insufficient
evidence to support even a “probable cause finding of a bona fide agreement. . . .”26
Parties have sometimes tried to assert that a particular restrictive covenant is invalid and
unenforceable because the party failed to completely and/or thoroughly read the document before
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signing. This is not a valid defense and courts have consistently held that “the failure to read a
contract before signing it in no way diminishes its binding force.”27 A party, absent proof of
accident, fraud, mistake, or unfair dealing, cannot escape contractual obligations by asserting that
he failed to read the provisions contained in the contract he signed and entered into with the
other party.28 Simply put, failure to read a contract does not in any way diminish the
enforceability of its respective contractual obligations as allocated to the parties.
D. Mootness
Close attention must be paid to the period of time specified in the non-compete
agreement as this will likely determine the applicable period of enforcement for the agreement’s
provisions. Courts can only enforce the provisions of a non-compete agreement in accordance
with its contractually agreed upon temporal limit. Various states approach this issue differently
and have established divergent policies regarding whether to extend the duration of a noncompete
agreement in order to provide a remedy for a contractual breach.
29 Some jurisdictions,
following a Florida Supreme Court decision,30 have permitted courts to exercise “broad equitable
power to extend even an expired restrictive covenant as a remedy for breach.”31 Connecticut
courts have thus far refused to apply this expansive standard to extend a restrictive covenant’s
duration when applying Connecticut law.32 Connecticut state law renders moot a request for
enforcement of a non-compete upon the expiration of the time limitation specified in the
agreement. It should be noted, however, that some non-compete provisions by their terms
extend the operative period for the same amount of time as an employee has been shown to be in
breach.
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III. TERMINATION OF EMPLOYMENT
The enforcement of a non-compete agreement is not dependent upon the circumstances
surrounding the termination of the employee. A restrictive covenant can be legally binding
whether the employee voluntarily terminates his employment or the employer releases the
employee from its employ. Termination does not invalidate a non-compete agreement. A noncompete
agreement is legally binding and enforceable post-termination and Connecticut courts
have routinely held that “termination of employment at [the] initiative of [the] employer does not
itself render [a] noncompetition provision invalid.”33 Furthermore, the enforceability of a
restrictive covenant will not turn on whether an employee experienced a voluntary or involuntary
termination.
34
Similarly, constructive discharge does not invalidate a non-compete agreement executed
under Connecticut law. A claim of constructive discharge is usually a defense offered by a
former employee to argue that although he or she terminated the employment it was only as a
result of employer bad faith and impropriety that rendered continued employment virtually
impossible. Constructive discharge occurs “when an employer, rather than directly discharging
an individual, intentionally creates an intolerable work atmosphere that forces an employee to
quit involuntarily.”35 The nature of termination is irrelevant to an agreement’s validity and
enforceability and “under Connecticut law, there is no reason to believe that a constructive
discharge invalidates a covenant not to compete when a straightforward termination otherwise
would not.”36
1 Conn. Gen. Stat. Ann. §35-26.
2 Beit v. Beit, 135 Conn. 195, 199-200, 557 A.2d 151 (1948).
3 Black’s Legal Dictionary (2nd ed. 1910).
4 State Nat’l Bank v. Dick, 164 Conn. 523, 529, 325 A.2d 235 (1973).
5 Id.
6 Command System, Inc. v. Wilson, No. CV 91-0702529S, 1995 Conn. Super. LEXIS 406, at 9
(Conn. Super. Ct. Feb. 8, 1995).
7 Thibodeau v. Design Group One Architects, LLC, 64 Conn. App. 573, 577, 781 A.2d 363
(2001).
8 Carter v. Bartek, 142 Conn. 448, 450, 114 A.2d 923 (1955); Fisher v. Jackson, 142 Conn. 734,
736, 118 A.2d 316 (1955); Somers v. Cooley Chevrolet Co., 146 Conn. 627, 629, 153 A.2d 426
(1959).
9 Sheets v. Teddy’s Frosted Foods, Inc., 179 Conn. 471, 474, 427 A.2d 385 (1980).
10 J.M. Layton & Co. v. Millar, No. CV040084446S, 2004 Conn. Super. LEXIS 2226, at 13, 16
(Conn. Super. Ct. Aug. 9, 2004).
11 Cost Management Incentives, Inc. v. London-Osborne, No. CV020463081, 2002 Conn. Super.
LEXIS 3967, at 19 (Conn. Super. Ct. Dec. 5, 2002).
12 Van Dyck Printing Co. v. DiNicola, 43 Conn. Supp. 191, 195-6, 648 A.2d 898 (1993).
13 Fairfaxx Corp. v. Nickelson, No. CV 990363873S, 2000 Conn. Super. LEXIS 2340, at 20
(Conn. Super. Ct. Sept. 14, 2000).
14 J.M. Layton & Co. v. Millar, No. CV 040084446S, 2004 Conn. Super. LEXIS 2226, at 16
(Conn. Super. Ct. Aug. 9, 2004).
15 Sartor v. Town of Manchester, 312 F. Supp.2d 238, 245 (D. Conn. 2004).
16 Roessler v. Burwell, 119 Conn. 289, 293, 176 A. 126 (1934); Home Funding Group, LLC v.
Kochmann, Civ. No. 3:06CV1234, 2007 U.S. Dist. LEXIS 41376, at 8 (D. Conn June 7, 2007).
17 Fairfaxx Corp. v. Nickelson, No. CV 990363873S, 2000 Conn. Super. LEXIS 2340, at 17
(Conn. Super. Ct. Sept. 14, 2000).
18 Id.; North American Outdoor Products, Inc. v. Dawson, No. CV040490177S, 2004 Conn.
Super. LEXIS 2677, at 7 (Conn. Super. Ct. Sept. 21, 2004).
19 Fairfaxx Corp. v. Nickelson, No. CV 990363873S, 2000 Conn. Super. LEXIS 2340, at 17
(Conn. Super. Ct. Sept. 14, 2000).
20 Stay Alert Safety Services, Inc. v. Fletcher, No. CV054007660S, 2005 Conn. Super. LEXIS
1915, at 2 (Conn. Super. Ct. July 11, 2005).
34
21 Krondes v. O’Boy, 37 Conn. App. 430, 434, 656 A.2d 692 (1995).
22 17 A Am Jur 2d Contracts 31.
23 Niehaus v. Cowles Business Media, Inc., 263 Conn. 178, 188-9, 819 A.2d 765 (2003)
24 Id.
25 North American Outdoor Products, Inc. v. Dawson, No. CV040490177S, 2004 Conn. Super.
LEXIS 2677, at 8-9 (Conn. Super. Ct. Sept. 21, 2004).
26 Luongo Construction & Development, LLC v. Keim, No. CV084008959S, 2008 Conn. Super.
LEXIS 1182, at 9-10 (Conn. Super. Ct. May 15, 2008).
27 Id. at 9.
28 Batter Building Materials Co. v. Kirschner, 142 Conn. 1, 7, 110 A.2d 464 (1954).
29 Aladdin Capital Holdings, LLC v. Donoyan, No. 3:11cv655, 2011 U.S. Dist. LEXIS 61095, at
7-8 (D. Conn. June 8, 2011).
30 Capelouto v. Orkin Exterminating Co., 183 So. 2d 532 (Fla. 1966).
31 Aladdin Capital Holdings, LLC v. Donoyan, No. 3:11cv655, 2011 U.S. Dist. LEXIS 61095, at
10 (D. Conn. June 8, 2011).
32 Id.
33 Robert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525, 532 (1988).
34 Id.
35 Pena v. Brattleboro, 702 F.2d 322, 325 (2d Cir. 1983).
36 Drummond American LLC v. Share Corporation, No. 3:08CV1665, 2009 U.S. Dist. LEXIS
105965, at 16 (D. Conn. Nov. 12, 2009).
Non-Compete Agreements in Connecticut- Part 1
by Joseph C. Maya on Feb. 15, 2017
Summary
Publication on the subject of non-compete agreements in the State of Connecticut. Part 1 encompasses non-competes as creatures of contract and termination of employment.