New Noncompete Restrictions Pass Connecticut General Assembly

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Connecticut may have one more legislative restriction on noncompetition agreements to join the prohibitions of noncompetes on security guards and radio and TV personalities (and lawyers, but that is not a legislative prohibition).

On May 4, 2016, the Connecticut General Assembly passed a bill restricting noncompetition covenants for physicians to one year and fifteen miles from the physician’s former employer’s primary place of business. The bill was a compromise measure both in regards to the geographic restriction and the temporal limit.  A copy of the relevant part of the bill is here.  Governor Malloy has not indicated whether he will sign or veto the bill.

Assuming the bill becomes law, what does this mean for physicians and their employers? Obviously, for physician restrictive covenant agreements that are put in place on or after the effective date of the bill (July 1, 2016), no physician noncompete can restrict employment beyond fifteen miles or for more than one year.

The more interesting question — if the bill becomes law — is since it is now the public policy of the State of Connecticut to limit physician noncompetes to fifteen miles and one year, how will that policy be applied to physician noncompetes that are for a period of time greater than one year or a distance greater than fifteen miles? Are they now void? Or may a court “blue pencil” the restrictions (reduce them to a legal limit)?  Additionally, what about noncompetes for other professions – is this law indicative, and persuasive evidence, of what the Connecticut legislature views as a reasonable time and place restriction?  This is obviously new territory in Connecticut.

The bill also contains some extraordinarily convoluted language restricting the enforceability of a physician noncompete unless the agreement is structured in a very specific way. The bill says that a covenant not to compete restricting a physician’s competitive activities shall not be enforceable against a physician if:

(i) such employment contract or agreement was not made in anticipation of, or as part of, a partnership or ownership agreement

and

such contract or agreement expires and is not renewed, unless, prior to such expiration, the employer makes a bona fide offer to renew the contract on the same or similar terms and conditions,

or

(ii) the employment or contractual relationship is terminated by the employer, unless such employment or contractual relationship is terminated for cause.

and

Each covenant not to compete entered into, amended or renewed on and after July 1, 2016, shall be separately and individually signed by the physician.

Therefore, physician noncompetes will not be valid in Connecticut at all unless they are part of an offer of partnership or ownership by the employer, which offer does not expire or terminate for other than cause. But the bill lacks a definition of “cause,” so that will undoubtedly be a source of litigation.

Certainly, if the bill does not pass the Governor’s scrutiny, then it does not reflect Connecticut’s public policy, and, under our state’s jurisprudence, it should not be able to be used as an indication of what a reasonable restrictive covenant is for a physician (or anyone else) in Connecticut. However, I predict that lawyers would nonetheless argue that the failed bill is persuasive evidence of what a reasonable post-employment restrictive covenant on a physician is in the State of Connecticut.

If the bill becomes law, I recommend that all physician employers revise their noncompetes if they exceed fifteen miles and one year to make them fall within the new law, and comply with the “partnership/ownership” requirement as well. I would also include a “blue pencil” provision in restrictive covenant agreements permitting the court to reduce a geographic or temporal restriction based upon the facts and circumstances presented.