Connecticut Courts Strike Down Unreasonable Non-Compete Agreements

Connecticut Courts Strike Down Unreasonable Non-Compete Agreements

Have you lost your job?  Your career? This economy is brutal and has affected millions of Americans.  Countless people have been fired or laid off, and a lot of folks are struggling to regain their livelihood, especially in the banking industry.  The current job market is lean and extremely competitive, and as a result, finding a replacement job to make ends meet has become difficult.  Remarkably, in some instances, it is not the economy that is preventing these folks from rejoining the ranks of the employed, but rather it is their former employers!

Assume this scenario for a moment.  Stock-Broker was working for JPMorgan in New York City, and her employment ended. She was either let go because of the economy or she just wanted a change in scenery.  After her employment with JPMorgan came to end, she received an offer from Morgan Stanley in Stamford, a competitor with JPMorgan in the investment banking industry.  Morgan Stanley is great.  They give free bagels out for breakfast on Wednesdays.  Stock-Broker decides she wants to take the job with Morgan Stanley, but there is a caveat.

When Stock-Broker began working for JPMorgan she signed an agreement that she would not work for another investment bank within a 60-mile radius for a year. The question then becomes not whether Stock-Broker wants to work for Morgan Stanley, but does the law allow her?  Does this scenario seem familiar to you?  If it does, please continue reading.

What is a Non-Compete Agreement

Typically, when an investment banker begins a career with a new employer, he or she signs a “non-compete” agreement.  This agreement essentially bars a former employee from engaging in a business that competes with the former employer.  This is certainly the case with hundreds of New York investment banks who require their bankers to sign a non-compete before they begin working.  When determining whether Stock-Broker in our hypothetical above can work for another investment bank, the legality of her non-compete agreement must be examined.

How Connecticut Approaches Non-Compete Agreements

In Connecticut, courts take a hard-line approach to non-compete agreements, and usually view them as against public policy.  This does not mean that all non-compete agreements are struck down, however they must be reasonable in order to survive.  To determine the reasonableness of a non-compete agreement, Connecticut courts take numerous factors into account such as the length of time the restriction lasts, the extent of the geographic area the former employee is barred from working in, and the public interest. See Robert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525, 529 n.2, 546 A.2d 216 (1988).

Under this multiple factor test, if any restriction is found to be unreasonable, then the agreement fails, and the employee is free to work where he or she will.   A non-compete agreement usually fails because the time-limit or geographic boundaries are unreasonable.  Typically, if the agreement restricts the former employee from engaging in a competing business within one year of termination and within a five-mile radius, a Connecticut court will not overturn it.  In contrast, during a non-compete agreement dispute, a Connecticut court quickly struck down a 50-mile radius restriction. See generally Braman Chemicals, Conn. Super. Ct.  LEXIS 3753 (2006).

Furthermore, Connecticut courts have routinely struck down non-compete agreements that restrict anything more than a 35-mile radius.  See e.g., Nesko Corp. v. Fontaine, 19 Conn. Super.  Ct. 160, 110 A.2d 631 (1954); see also Trans-Clean Corp. v. Terrell, Conn. Super. Ct. LEXIS 717 (1998) (court noted that the 60-mile radius from the employer’s home office in Stratford encompassed approximately 75% of the state); see also Timenterial, Inc. v. Dagata, 29 Conn. Super. Ct. 180, 277 A.2d 512 (1971) (50-mile radius restriction held invalid).

Analyzing a Hypothetical Non-Compete Agreement

Apply these factors to our Morgan Stanley hypothetical.  Remember, Stock-Broker signed a non-compete agreement with JPMorgan that provided she would not work for a competing investment bank within a 60-mile radius. Unfortunately for Stock-Broker, Stamford is in Connecticut and only 40 miles away.  Stamford’s location falls within the 60-mile radius in JPMorgan’s non-compete agreement, and thus Stock-Broker would be violating the agreement if she took the job.

Stock-Broker takes the job anyway and JPMorgan sues her.  Stock-Broker argues that her non-compete agreement is unreasonable and therefore invalid.  The Connecticut court will apply the five factor test, and based on past rulings, most likely find that a 60-mile radius is too large of a geographic area.  Subsequently, Stock-Broker will then be allowed to take the position with Morgan Stanley.

Now, let us assume that JP Morgan is also in Stamford, and Stock-Broker signed a non-compete that restricted her from working with a competing business within a 15-mile radius.  JP Morgan sues Stock-Broker and she again argues to invalidate the non-compete for unreasonableness.  This time however, the outcome will be different.  The geographic distance of a 15-mile radius is negligible compared to a 60-mile radius, and Connecticut courts have routinely upheld non-competes that contain such a distance.

Conclusion

Non-compete agreements prevent thousands of stock-brokers from regaining employment in investment banking.  A lot of former employees believe there is nothing that can be done; when in reality a lot of non-compete agreements would most likely not hold up in court.  If you’re a stock-broker who was fired or laid off, and is struggling to find a replacement job in the investment banking world because of your employment contract, call us here at Maya Murphy P.C. and we’ll give you free advice.