In this episode of the Employee Survival Guide, Mark explores when can non-competition agreements be enforced against independent contractors and whether they can be voided. Noncompetition agreements on independent contractors should not be enforced based on the analysis in the episode.
The Employee Survival Guide is a podcast only for employees. We will share with you all the information your employer does not want you to know about and guide you through various important employment law issues. The goal of the Employee Survival Guide podcast is to provide you with critical insights about your employment and give you the confidence to protect your job and career, especially during difficult times.
YOUR HOST MARK CAREY
The Employee Survival Guide podcast is hosted by seasoned Employment Law Attorney Mark Carey, who has only practiced in the area of Employment Law for the past 25 years. Mark has seen just about every type of employment dispute there is, including the man who lost his voice box and his career, and has filed several hundred lawsuits in state and federal courts around the country, including class action suits. He has a no frills and blunt approach to employment issues faced by millions of workers nationwide. Mark endeavors to provide both sides to each and every issue discussed on the podcast so you can make an informed decision.
EMPLOYEE SURVIVAL GUIDE PODCAST IS LIKE NO OTHERS
The Employee Survival Guide podcast is just different than other lawyer podcasts! How? Mark hates “lawyer speak” used by lawyers and just prefers to talk using normal everyday language understandable to everyone, not just a few. This podcast is for employees only because no one has considered conveying employment information directly to employees, especially information their employers do not want them to know about. Mark is not interested in the gross distortion and default systems propagated by all employers, but targets the employers intentions, including discriminatory animus, designed to make employees feel helpless and underrepresented within each company. Company’s have human resource departments which only serve to protect the employer. You as an employee have nothing! Well, now you have the Employee Survival Guide to deal with your employer.
Through the use of quick discussions about individual employment law topics, Mark easily provides the immediate insight you need to make important decisions. Mark also uses dramatizations based on real cases he has litigated to explore important employment issues from the employee’s perspective. Both forms used in the podcast allow the listener to access employment law issues without all the fluff used by many lawyers.
If you enjoyed this episode of the Employee Survival Guide please like us on Facebook, Twitter and LinkedIn. We would really appreciate if you could leave a review of this podcast on your favorite podcast player such as Apple Podcasts.
The content of this website is provided for information purposes only and does not constitute legal advice nor create an attorney-client relationship. Carey & Associates, P.C. makes no warranty, express or implied, regarding the accuracy of the information contained on this website or to any website to which it is linked to.
When Can Non-Competition Agreements Be Enforced Against Independent Contractors? In response to a recent Carey & Associates, P.C. survey of topics of interest in employment law, some of our readers asked: “Are non-competition agreements enforceable against independent contractors?” This is an excellent question. The short answer in Connecticut is: “Yes, but with some exceptions and special circumstances.”
What Is A Non-Competition Agreement?
Non-competition agreements are special contracts between employers and their workers which prohibit workers from engaging in business activities that compete with their former employers, usually for a fixed period of time following the end of an employment relationship and usually within a definite geographical area. These agreements, often called, “restrictive covenants” allow employers to prevent a former employee or contractor from earning a living in his or her business after the employment relationship ends.
Courts Generally Enforce Non-Competition Agreements
Courts in Connecticut will generally enforce non-competition agreements provided there is consideration provided for the promise not to compete and provided the restrictions are not unreasonable to protect the employer’s legitimate business interests. Facts which our courts consider in evaluating the “reasonableness” of an non-competition agreements include: (1) the duration of the restriction, (2) the scope of the geographic restriction, (3) the protection afforded to the employer, (4) the degree of restriction on the employee’s career opportunities, and (5) whether the restrictions are in the public’s interest. If even one factor fails the “reasonableness” test, the non-competition agreements could be held to be unenforceable.
In Connecticut, as in many states, there are no statutes or regulations that specifically address non-competition agreements outside of the medical profession. Whether a non-compete agreement is enforceable against an independent contractor is not specifically addressed under Connecticut law at this time. Our courts do not formally distinguish between non-competition agreements with employees as opposed to independent contractors. That being said, the five-factor analysis described above does vary when it is applied to the independent contractor relationship. When courts analyze the fourth factor, i.e., the effect the non-competition agreements has on the worker’s career opportunities, our courts must account for the fact that independent contractors are by definition expected to serve more than a single customer at one time. That is what makes them, “independent.” Notwithstanding this obvious basis to reject all non-competition agreements as applied to independent contractors, our courts will often find non-competition agreements enforceable. For example, non-competition agreements were upheld in circumstances where an independent contractor uses their position with the employer to gain information to set up a competing business for themselves.
Rationale For Non-Competition Agreements Are Faulty
The concepts underlying and justifying these restrictive covenants are faulty. One underlying notion that is misapplied to non-competition agreements is the “freedom of contract.” This legal fiction posits that individuals and firms are free to act in the marketplace in their own best interests and are therefore free to make any lawful agreements they see fit. Unfortunately for most workers this “freedom” is an illusion. The notion that workers who do not want to be bound by non-competition agreements can simply “choose” to work elsewhere is absurd. Jobs are difficult to find during the best of times. During a global pandemic amid skyrocketing unemployment, locating a good position can be overwhelmingly difficult. If one is restricted from using one’s business contacts, skills, and training to function in the market and the industry in which one has established a record of experience, the task of finding gainful employment becomes insurmountable. In the employment context the power and resources of the employer as opposed to the employee is generally so unbalanced that “freedom of contract” is a bad joke.
While non-competition agreements are becoming increasingly common, these restrictions on a person’s ability to work often cause extreme hardship on workers who must find continuous employment within their chosen industry in order to survive and to support their families. Why should an employer who has no legal obligation to employ its workers for any period of time get to dictate to a former employee where and how he or she can work? How can such an economically crippling restriction between parties of drastically unequal bargaining power be tolerated by courts of equity?
In a recent article, Attorney Mark Carey explores the profound injustice of restricting an employee’s right to work. (Covid-19 Cancels All Noncompete Agreements Due to Impossibility) During a pandemic where millions of American workers are unemployed, restricting anyone’s freedom to work is patently unconscionable. While our courts consistently uphold “reasonable” restrictions on competition, the Connecticut state legislature is at last beginning to address the problem directly.
In another recent article on this blog, Attorney Liz Swedock explains the provisions of a piece of proposed legislation currently under consideration by the Connecticut Legislature’s Labor and Public Employee Committee.(Connecticut “May Pass” a Partial Ban on Noncompetition Agreements). The new proposed legislation, SB 906, “An Act Concerning Non-Compete Agreements” would impose some reasonable limits on an employer’s ability to enforce a non-compete agreement. As it applies to independent contractors, SB 906 would prohibit non-competition agreements against contractors unless the contractor is being paid over five times the minimum wage or $60.00 per hour. While this proposed legislation is a step in the right direction in that it prevents non-competition agreements from victimizing the lowest-paid workers in the marketplace, it does not address the fundamental injustice of these agreements. The legislature’s special treatment of independent contractors under SB 906 indicates a recognition that employees and contractors are not in the same position with respect to these contracts.
Independent Contractors Serve More Than One Master
When it comes to independent contractors, the applicability of non-competition agreements becomes quite complex. While courts have recognized an employer’s interest in protecting its trade secrets and “good will” through non-competition agreements, independent contractors are by definition, not bound to a single employer, although in practice they sometimes are. The term “independent” refers to a contractor’s ability to provide goods and services to many businesses at once. Employees on the other hand are generally obligated to devote all of their productive time and energy to furthering the interests of their employer.
Employers Face Risks When Enforcing Non-Compete Against Independent Contractor
There are risks for employers who try to enforce non-competition agreements against independent contractors. When an employer imposes non-competition restrictions on an independent contractor, it runs the risk of changing the nature of its relationship with that worker. Where an employer exercises a high degree of control over the work of a contractor, that contractor could be considered a regular employee. Imposing a non-competition agreement could be construed as evidence of the very control that marks a traditional employment relationship.
Thus, employers sometimes seek to enforce non-competition agreements but are then counter-sued for employee benefits and wages based on the assertion of control under the non-competition agreement. Employers could incur liability for wages, administrative fines, or worker’s compensation benefits when an employee is “misclassified” as an independent contractor. This fact gives employers pause when enforcing non-competition agreements against their independent contractors.
Non-Competition Agreements Are Overreaching
In general, while courts in Connecticut will enforce non-competition agreements against independent contractors where they are held to be “reasonable”, it is difficult to justify the necessity of these restrictions. While employers often justify their restrictive covenants by asserting their right to protect confidential business information, this argument is irrelevant given the fact that all of an employer’s proprietary information is protected under trade secret and intellectual property protection statutes. Further, employers can and do include broad confidentiality and non-disclosure provisions into their employment agreements, which provide contractual protections from dissemination of vital company information. It is simply over-kill and over-reach to also seek to prevent competition from former workers whether they are employees or contractors.
The basic answer to the reader’s question about enforceability of non-competition agreements against independent contractors is that they are enforceable against independent contractors, but it is slightly more difficult and definitely riskier for employers to enforce such agreements against them. The larger answer is that all non-competes are inherently unjust, inequitable, and should be resisted by employees and contractors alike.
If you would like more information about When Can Non-Competition Agreements Be Enforced Against Independent Contractors? or would like to hire an employment attorney, please contact Carey & Associates, P.C. at info@capclaw.com or call (203) 255-4150.
Connecticut “May Pass” a Partial Ban on Noncompetition Agreements: This article is responding to a survey response question we recently received. The reader asked, “Do you see a time when non-competes are not allowed in CT, similar to how CA approaches them? What would have to happen for that to occur? Do you believe it would be a net positive or negative?”
On March 4, 2021, Connecticut’s Labor and Public Employees Committee is holding a public hearing to discuss a new proposed bill which would vastly reduce the ability of employers to impose non-compete agreements on employees and independent contractors.
Maximum term of one year if unpaid, or maximum term of two years if the employee is paid their entire salary and benefits for the term of the non-compete; and
If an exempt employee (paid a salary, not hourly wage earners), only if that individual is paid over 3x minimum wage (approximately $75,000+ per year for a full-time employee at the current minimum wage of $12 per hour);
If an independent contractor, only if that individual is paid over 5x minimum wage (approximately $60 per hour or $125,000+); and
The non-compete must be offered to the employee at least 10 business days BEFORE a deadline to accept the job offer (as either an employee or independent contractor) or the deadline to sign the non-compete (if already working in the job).
In addition, the proposed bill includes additional employee-favoring protections, including:
If the individual being asked to sign the non-compete is already an employee or independent contractor, the individual must be paid “sufficient consideration” for agreeing to the non-compete. The current rule in Connecticut is less clear – some courts have held that, when it comes to at-will employment, simply being allowed to continue your job is “sufficient consideration” when your employer demands that you sign a non-compete after you have already been working for some time. If you refuse, they can fire you. This bill would create a clearer rule.
The non-compete cannot require the employee litigate or arbitrate the non-compete outside of Connecticut. This is extremely helpful for employees who work for multistate (or worldwide) companies who often require that any disputes over the non-compete be brought wherever the company is headquartered. This could be across the country or across the world.
Non-competes will be automatically invalid if they either (1) attempt to restrict the employee in any geographical location where they did not work during the prior two years, or (2) attempt to restrict anything other than “type of work” the employee actually did for the company. This is also very good for employees because many non-competes attempt to restrict employees from performing any work, even if non competitive, for any theoretically competing business, and try to apply non-competes to every location where the company does business – even if the employee only worked in one or a few locations.
We strongly support this type of legislation and will provide you with updates as the bill progresses.
Mark Carey Weighs In:
My first reaction to reading this proposed legislation was that it smacked of compromise between bipartisan politicians seeking to coddle employers and I am sure the CBIA was the biggest opponent here.
There is still no complete ban on noncompetition agreements here in Connecticut, as a majority of employees can still be benched on the sideline for a year without any pay for doing so. Employer lobby groups pushed their continued agenda to restrict the livelihood of employees, even during a pandemic. Noncompetition agreements are undemocratic in my opinion and should be abolished in Connecticut, just as they were in California and several other states. In a recent article, I argued that noncompetition agreements should be void due to impossibility during a pandemic. Now I see our democratically controlled General Assembly is screwing employees once again. Shame on you all, go explain that to the working class employees who voted you into office! When will this nonsense ever end?
According to the CBIA website, “[t]his bill could cause economic harm that comes from the loss of your trade secrets, proprietary information, client lists, source codes, or other confidential information.” This explanation is nonsense. Of the remaining businesses left in Connecticut, these employers already have in place confidentiality and proprietary protection agreements with their employees that protect against employee theft. There is also the common law claims of breach of the duty of loyalty and care that most employers use to go after bad actors in noncompete disputes. There are statutory claims such as Connecticut’s Unfair Trade Practices Act and the Uniform Trade Secrets Act employers use to prosecute bad actors. Noncompetition agreements are solely intended to harm employees from earning a livelihood, do not be fooled. Employers in the State of California are doing just fine since 1872, the year the state outlawed noncompetition agreements.
Connecticut “May Pass” a Partial Ban on Noncompetition Agreements: If you would like more information about this topic or would like to hire an employment attorney, please contact Carey & Associates, P.C. at info@capclaw.com or call (203) 255-4150.
1. THINK OF YOUR SEPARATION/SEVERANCE OFFER AS A NEGOTIATION.
2. REVIEW WHAT YOU ARE BEING OFFERED – USUALLY MONEY.
3. CONFIRM THAT YOU ARE BEING OFFERED EVERYTHING YOU ARE ENTITLED TO
4. ASK FOR A COPY OF YOUR PERSONNEL FILE – YOU ARE LEGALLY ENTITLED TO IT.
5. CONFIRM WHETHER YOU HAVE AN ERISA GROUP BENEFITS PLAN WHICH COULD INCLUDE SEVERANCE BENEFITS.
6. CONSIDER WHETHER YOU MIGHT HAVE ANY LEGAL CLAIMS AGAINST YOUR EMPLOYER.
7. REQUEST TO BE RELEASED FROM ANY NON-COMPETE, NON-SOLICIT, OR OTHER RESTRICTIVE COVENANTS (IF ANY APPLY TO YOU)
8. REVIEW NON-DISPARAGEMENT PROVISIONS AND ASK THAT THEY LIKEWISE PROTECT YOU.
9. CONTROL YOUR FUTURE REFERENCE.
10. ARBITRATION CLAUSES.
The Employee Survival Guide is a podcast only for employees. We will share with you all the information your employer does not want you to know about and guide you through various important employment law issues. The goal of the Employee Survival Guide podcast is to provide you with critical insights about your employment and give you the confidence to protect your job and career, especially during difficult times.
YOUR HOST MARK CAREY
The Employee Survival Guide podcast is hosted by seasoned Employment Law Attorney Mark Carey, who has only practiced in the area of Employment Law for the past 25 years. Mark has seen just about every type of employment dispute there is and has filed several hundred lawsuits in state and federal courts around the country, including class action suits. He has a no frills and blunt approach to employment issues faced by millions of workers nationwide. Mark endeavors to provide both sides to each and every issue discussed on the podcast so you can make an informed decision.
EMPLOYEE SURVIVAL GUIDE PODCAST IS LIKE NO OTHERS
The Employee Survival Guide podcast is just different than other lawyer podcasts! How? Mark hates “lawyer speak” used by lawyers and just prefers to talk using normal everyday language understandable to everyone, not just a few. This podcast is for employees only because no one has considered conveying employment information directly to employees, especially information their employers do not want them to know about. Mark is not interested in the gross distortion and default systems propagated by all employers, but targets the employers intentions, including discriminatory animus, designed to make employees feel helpless and underrepresented within each company. Company’s have human resource departments which only serve to protect the employer. You as an employee have nothing! Well, now you have the Employee Survival Guide to deal with your employer.
Through the use of quick discussions about individual employment law topics, Mark easily provides the immediate insight you need to make important decisions. Mark also uses dramatizations based on real cases he has litigated to explore important employment issues from the employee’s perspective. Both forms used in the podcast allow the listener to access employment law issues without all the fluff used by many lawyers.
If you enjoyed this episode of the Employee Survival Guide please like us on Facebook, Twitter and LinkedIn. We would really appreciate if you could leave a review of this podcast on your favorite podcast player such as Apple Podcasts.
The content of this website is provided for information purposes only and does not constitute legal advice nor create an attorney-client relationship. Carey & Associates, P.C. makes no warranty, express or implied, regarding the accuracy of the information contained on this website or to any website to which it is linked to.
You’re a free agent and your noncompetition agreement is void! That should make you feel less stressed about getting your next job in the very industry you have spent so many years cultivating, especially during this pandemic. Yes, I know your employer made you sign a noncompetition agreement when you were hired, but Covid-19 has changed everything.
I did not like noncompetition agreements before Covid-19 and I dislike them even more now seven months into this pandemic. According to the latest jobs report, click HERE, “the total number of people claiming benefits in all programs for the week ending September 19 was 25,505,499…” If you are a judge presiding over a complaint brought by an employer attempting to enforce a noncompetition agreement, would you enforce it against the unemployed employee in the face of these jobless numbers? Answer, No! Regardless of the law related to noncompetition agreements (restrictive covenant), no judge will want to prevent employees terminated without cause from getting a new job. Who is going to pay for the employee’s food? Who is going to pay for the employee’s mortgage? How is she going to buy medication or diapers?
The time has now come to confront the idiotic, senseless and self-serving practice followed by 50% of all employers to force noncompetition agreements on vulnerable employees, especially during this pandemic. We need to protect employees and the income they need right now to survive. We also need to confront employers and demand they stop using noncompetition agreements altogether because they are abusive and unnecessary. Employers are already overprotected by making employees sign Confidentiality and Proprietary Information Agreements, which protect against the disclosure of company trade secrets to third party employers.
NONCOMPETE MUST BE VOIDED DUE TO IMPOSSIBILITY
What does impossibility mean in relation to noncompetition agreements during the Covid-19 pandemic? Courts generally apply the doctrine of impossibility whenever there is an interference in achieving the purpose of the contract between the parties that is beyond their control and it was never foreseen prior to entering into the contract. “A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.” Roy v. Stephen Pontiac-Cadillac, Inc., 15 Conn. App. 101, 103-04 (1988) (internal citations omitted.) When impossibility is raised, “the court is asked to construct a condition of performance based on changed circumstances, a process which involves at least three reasonably definable steps. First, a contingency—something unexpected—must have occurred. Second, the risk of the unexpected occurrence must not have been allocated either by agreement or by custom. Finally, occurrence of the contingency must have rendered performance commercially impracticable.” Id. at 104, quoting J. Calamari & J. Perillo, Contracts (3d Ed.) § 13-1, p. 537; see also Hess v. Dumouchel Paper Co., 154 Conn. 343, 349-52 (1966)
All employers “intentionally” manipulate employees to sign noncompete agreements in order to get the job, i.e. take it or leave it. Employers typically seek to prevent employees from working for a competitor for a period of twelve months after termination. Bam! A pandemic hits the U.S. and the world. That’s the impossibility event. Massive layoffs follow, covering nearly 40 million people. By the way, an estimated 157.76 million people work in the U.S. Of course we want the economy to return to normal as quickly as possible, and those unemployed workers are part of that economy. If 50% of all employers use noncompetition agreements, then we have a major economic obstruction caused by self-serving employers who deliberately seek to prevent these unemployed workers from earning a living. Sounds unfair, because it is. It is impossible for any employee to comply with the one sided noncompetition agreement because they need to put food on the table and just survive. That is the argument I am making and will make in every court case my firm becomes involved with. This is a public policy crisis plain and simple. There exist no current Covid-19 court decisions on this issue, but there are a few cases now in the pipeline. The public, the politicians and the courts are faced with a major public policy dilemma. Should the courts protect employers for the sake of protection alone or can they help employees by overriding noncompetition agreements entirely. I believe the scales tilt heavily in favor of employees, employed and unemployed alike.
WHAT IS A NONCOMPETE AGREEMENT IN 2020?
It is a promise the employee allegedly makes, without his/her consent, with their employer that after they are terminated, they need to refrain from accepting employment in a similar line of work, with a competitive company, or establishing a competing business, for a specified period in a certain geographical area. A non-compete clause ancillary to a valid agreement is unreasonable in restraint of trade and void as a matter of law if: (1) the restraint is greater than is needed to protect the business and goodwill of the employer; or (2) the employer’s need is outweighed by the hardship to the employee and the likely injury to the public. In other words, if you are unable to earn a living because you are sitting on the bench during the noncompete period, without pay, solely because of the employer’s self-serving noncompete, then a Court will void the agreement. The employer is already protected from the employee because the employer forced the vulnerable employee to sign the confidentiality agreement, a.k.a. Confidentiality and Proprietary Information Agreement, which protects against disclosure of company trade secrets to third party employers.
WHAT IS THE BUSINESS INTEREST?
The argument in favor of enforcing noncompete agreements is primarily to protect the company’s trade secrets, client relations, customer goodwill, employee training. However, restraining competition is not a legitimate and enforceable business interest. As I have repeatedly stated, the employer is already protected against disclosures of trade secrets through the Confidentiality and Proprietary Information Agreement. The employer’s argument that a noncompete agreement is necessary to prevent the disclosure of trade secrets to third party employers is simply abusive and overreaching.
NONCOMPETE AGREEMENTS VIOLATE ANTITRUST LAW
I argue that noncompetition agreements violate Section 1 of the Sherman Act because every noncompete agreement is an unlawful contract to restrain trade. Section 2 of the Sherman Act makes it illegal to “monopolize, or attempt to monopolize, …any part of the trade…” (The Sherman Act, 15 U.S.C.§ 1)
You will never hear an argument in any litigation over the attempted enforcement of an employee noncompete agreement that the enforcing employer was seeking to restrain competition of its competitor businesses. Such a statement and action would constitute an unlawful antitrust action. But we know in reality, that is exactly what employers are doing. This conclusion is further supported by the recent statistics that nearly 49% of all employers use noncompetition agreement for some or all of their employees, a doubling of the amount from 2014. Noncompetition Agreements are a tool to kill competition, plain and simple. Do not fall for the argument about protecting the company from rogue employees seeking to damage the employer. This accusation, albeit true in the rarest of circumstances, is specious given the employer made the employee sign an agreement to protect the employer’s trade secrets, the Confidentiality and Proprietary Information Agreement.
If you enjoyed this episode of the Employee Survival Guide please like us on Facebook, Twitter and LinkedIn. We would really appreciate if you could leave a review of this podcast on your favorite podcast player such as Apple Podcasts.
Podcast Episode: COVID-19 CANCELS ALL NONCOMPETE AGREEMENTS DUE TO IMPOSSIBILITY: For more information, please contact Carey & Associates, P.C. at 203-255-4150, www.capclaw.com or email at info@capclaw.com.
The content of this website is provided for information purposes only and does not constitute legal advice nor create an attorney-client relationship. Carey & Associates, P.C. makes no warranty, express or implied, regarding the accuracy of the information contained on this website or to any website to which it is linked to.
You’re a free agent and your noncompetition agreement is void! That should make you feel less stressed about getting your next job in the very industry you have spent so many years cultivating, especially during this pandemic. Yes, I know your employer made you sign a noncompetition agreement when you were hired, but Covid-19 has changed everything.
I did not like noncompetition agreements before Covid-19 and I dislike them even more now seven months into this pandemic. According to the latest jobs report, click HERE, “the total number of people claiming benefits in all programs for the week ending September 19 was 25,505,499…” If you are a judge presiding over a complaint brought by an employer attempting to enforce a noncompetition agreement, would you enforce it against the unemployed employee in the face of these jobless numbers? Answer, No! Regardless of the law related to noncompetition agreements (restrictive covenant), no judge will want to prevent employees terminated without cause from getting a new job. Who is going to pay for the employee’s food? Who is going to pay for the employee’s mortgage? How is she going to buy medication or diapers?
The time has now come to confront the idiotic, senseless and self-serving practice followed by 50% of all employers to force noncompetition agreements on vulnerable employees, especially during this pandemic. We need to protect employees and the income they need right now to survive. We also need to confront employers and demand they stop using noncompetition agreements altogether because they are abusive and unnecessary. Employers are already overprotected by making employees sign Confidentiality and Proprietary Information Agreements, which protect against the disclosure of company trade secrets to third party employers.
Noncompete Must Be Voided Due to Impossibility
What does impossibility mean in relation to noncompetition agreements during the Covid-19 pandemic? Courts generally apply the doctrine of impossibility whenever there is an interference in achieving the purpose of the contract between the parties that is beyond their control and it was never foreseen prior to entering into the contract. “A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.” Roy v. Stephen Pontiac-Cadillac, Inc., 15 Conn. App. 101, 103-04 (1988) (internal citations omitted.) When impossibility is raised, “the court is asked to construct a condition of performance based on changed circumstances, a process which involves at least three reasonably definable steps. First, a contingency—something unexpected—must have occurred. Second, the risk of the unexpected occurrence must not have been allocated either by agreement or by custom. Finally, occurrence of the contingency must have rendered performance commercially impracticable.” Id. at 104, quoting J. Calamari & J. Perillo, Contracts (3d Ed.) § 13-1, p. 537; see also Hess v. Dumouchel Paper Co., 154 Conn. 343, 349-52 (1966)
All employers “intentionally” manipulate employees to sign noncompete agreements in order to get the job, i.e. take it or leave it. Employers typically seek to prevent employees from working for a competitor for a period of twelve months after termination. Bam! A pandemic hits the U.S. and the world. That’s the impossibility event. Massive layoffs follow, covering nearly 40 million people. By the way, an estimated 157.76 million people work in the U.S. Of course we want the economy to return to normal as quickly as possible, and those unemployed workers are part of that economy. If 50% of all employers use noncompetition agreements, then we have a major economic obstruction caused by self-serving employers who deliberately seek to prevent these unemployed workers from earning a living. Sounds unfair, because it is. It is impossible for any employee to comply with the one sided noncompetition agreement because they need to put food on the table and just survive. That is the argument I am making and will make in every court case my firm becomes involved with. This is a public policy crisis plain and simple. There exist no current Covid-19 court decisions on this issue, but there are a few cases now in the pipeline. The public, the politicians and the courts are faced with a major public policy dilemma. Should the courts protect employers for the sake of protection alone or can they help employees by overriding noncompetition agreements entirely. I believe the scales tilt heavily in favor of employees, employed and unemployed alike.
What is a Noncompete Agreement in 2020?
It is a promise the employee allegedly makes, without his/her consent, with their employer that after they are terminated, they need to refrain from accepting employment in a similar line of work, with a competitive company, or establishing a competing business, for a specified period in a certain geographical area. A non-compete clause ancillary to a valid agreement is unreasonable in restraint of trade and void as a matter of law if: (1) the restraint is greater than is needed to protect the business and goodwill of the employer; or (2) the employer’s need is outweighed by the hardship to the employee and the likely injury to the public. In other words, if you are unable to earn a living because you are sitting on the bench during the noncompete period, without pay, solely because of the employer’s self-serving noncompete, then a Court will void the agreement. The employer is already protected from the employee because the employer forced the vulnerable employee to sign the confidentiality agreement, a.k.a. Confidentiality and Proprietary Information Agreement, which protects against disclosure of company trade secrets to third party employers.
What is the Business Interest?
The argument in favor of enforcing noncompete agreements is primarily to protect the company’s trade secrets, client relations, customer goodwill, employee training. However, restraining competition is not a legitimate and enforceable business interest. As I have repeatedly stated, the employer is already protected against disclosures of trade secrets through the Confidentiality and Proprietary Information Agreement. The employer’s argument that a noncompete agreement is necessary to prevent the disclosure of trade secrets to third party employers is simply abusive and overreaching.
Noncompete Agreements Violate Antitrust Law
I argue that noncompetition agreements violate Section 1 of the Sherman Act because every noncompete agreement is an unlawful contract to restrain trade. Section 2 of the Sherman Act makes it illegal to “monopolize, or attempt to monopolize, …any part of the trade…” (The Sherman Act, 15 U.S.C.§ 1)
You will never hear an argument in any litigation over the attempted enforcement of an employee noncompete agreement that the enforcing employer was seeking to restrain competition of its competitor businesses. Such a statement and action would constitute an unlawful antitrust action. But we know in reality, that is exactly what employers are doing. This conclusion is further supported by the recent statistics that nearly 49% of all employers use noncompetition agreement for some or all of their employees, a doubling of the amount from 2014. Noncompetition Agreements are a tool to kill competition, plain and simple. Do not fall for the argument about protecting the company from rogue employees seeking to damage the employer. This accusation, albeit true in the rarest of circumstances, is specious given the employer made the employee sign an agreement to protect the employer’s trade secrets, the Confidentiality and Proprietary Information Agreement.
If you would like more information about this topic please contact our employment attorneys at Carey & Associates, P.C. at 203-255-4150 or email to info@capclaw.com.
Podcast: Removing Unwanted Noncompetition Employment Agreements: In this edition of the Employee Survival Guide you will learn the real truth about why employers use noncompetition agreements and the strategies that we employ to remove these unwanted self-serving employment agreements for our clients.
If you enjoyed this episode of the Employee Survival Guide please like us on Facebook, Twitter and LinkedIn. We would really appreciate if you could leave a review of this podcast on your favorite podcast player such as Apple Podcasts.
The content of this website is provided for information purposes only and does not constitute legal advice nor create an attorney-client relationship. Carey & Associates, P.C. makes no warranty, express or implied, regarding the accuracy of the information contained on this website or to any website to which it is linked to.
Most at-will employees who have been recently terminated are given a “Separation” or “Severance” offer from their (now) former employer, in the form of a contract (or packet). This post is intended to give you a few pointers of what to look out for in such agreements.
Remember – this is not legal advice for the individual! This is just a general guide for common issues we encounter. If you have any specific questions about your own separation contract, please call us!
1. Think of your separation/severance offer as a negotiation.
Most employees are not entitled to severance. There is no such thing as legally required “two weeks” pay or anything like that. However, most of the time employers offer terminated employees severance anyway.
Why do they do this? Because they want you to sign a legal release, which is a contractual agreement that you are waiving any rights or grounds you might have to bring a lawsuit against your employer. Your separation/severance packet is this legal release.
So, what does this mean? It means they are offering you something because they want you to sign that release. This is a tit-for-tat. Don’t be afraid to ask for more before you sign.
2. Review what you are being offered – usually money.
As noted, often at-will employees are not legally entitled to a specific amount of severance from their employer. The first element you should think about, before you sign, is whether they are offering you enough in exchange for what they want from you – that legal release.
There might also be other components in your separation/ severance offer, such as continuation of health care or other benefits, or stock vesting. Start by reviewing your agreement carefully to see what they are offering you.
3. Confirm that you are being offered everything you are entitled to.
Review your employee handbook and any other documents you signed at any point during your employment, whether when you first started or while you worked there.
You are always entitled to be paid out for any accrued sick time, vacation time, or any other form of PTO your company offers. You are also entitled to any earned wages, typically referred to as your “last paycheck.” You must be paid for all this time by your next usual pay period.
Review your documents to confirm whether there are any contractual or established policies regarding termination, separation, or severance. For example, your employer might be required to provide you with a notice period before they can terminate you. This might be days, weeks, or months. A notice period could be detailed in your individual employment documents, or in your company’s general documents, such as the employee handbook.
4. Ask for a copy of your personnel file – you are legally entitled to it.
All you need to do is send an email. It could be to HR or your own supervisor. Your personnel file will contain all of the documents you signed with your employer, so this can be particularly useful when you have been employed for a while and can’t remember if you kept copies of everything.
5. Confirm whether you have an ERISA group benefits plan which could include severance benefits.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry. Sometimes employers also utilize ERISA plans for severance benefits.
If you are unsure, ask your employer and there is also a free website where you can search for your company name – https://freeerisa.benefitspro.com . You have to make an account, but it is actually free.
6. Consider whether you might have any legal claims against your employer.
If you have a valid legal claim against your employer, this is a huge source of leverage as you negotiate your separation/ severance offer.
Remember, (most of the time) this is a pretty simple exchange. They are offering you something (usually money) in exchange for your agreement to drop any potential legal claims you might have, even if you don’t have any. This boils down to mean that they are potentially offering you free money in exchange for nothing if you have no legal claims. Employers do this simply for peace of mind (and sometimes for reputational reasons in the industry).
If you do have a legal claim, that can be a game-changer in a separation negotiation. At that point, you have to consider the elements on a scale – the value of your legal claim on one side, against the value of the legal release your employer wants, on the other side. Bottom line, it means your company might be willing to offer you much more separation/ severance pay in exchange for you signing the legal release.
If you think you might have a claim, we encourage you to call us to discuss.
7. Request to be released from any non-compete, non-solicit, or other restrictive covenants (if any apply to you).
If you are subject to any type of non-compete, non-solicit, or other restrictive covenants, now is the time to request to be released. Remember – these are simply contractual agreements, and your employer can agree to release you at any time. Even if your employer is not legally required to release you, they are often willing to discuss the option, and/or might agree to reduce the restrictiveness of such covenants. This is part of the negotiation.
Even if such covenants are not spelled out in your separation/ severance offer – they might still apply to you if your separation/ severance offer “incorporates by reference” a prior contract. Sometimes, if an employee signed a non-compete while they were employed, the separation/ severance offer might say something like “Employee agrees that Employee’s Employment Agreement is expressly incorporated by reference into this Agreement as if set forth fully herein.” This means that every single restriction in your employment agreement still applies to you, even after you sign the new separation/ severance offer. Be aware.
8. Review non-disparagement provisions and ask that they likewise protect you.
Many separation/ severance offers contain non-disparagement clauses, which will say something along the lines of “employee agrees not to make any statements which disparage the company or are in any way harmful to the reputation of the company.” These provisions are very broad and much more broad than the legal definitions of defamation or slander. A single angry comment on Facebook, for example, could be a violation of this provision. If you sign an agreement that contains this, be aware that you should avoid any negative commentary about your former employer, including online.
Likewise, you can ask for the same protection for yourself – that the employer commits not to make any disparaging, damaging, or negative statements about you in the future. Again, don’t be afraid to negotiate.
9. Control your future reference.
Similar to non-disparagement, you also have the option to ask for language which will control what your now former employer can say about you when you need future potential employers to call them for a reference. The exact language is up to you, but we often request a provision that will only allow the employer to confirm your dates of employment, and position or title held. You can agree or not agree to allow the former employer to give out your salary information.
10. Arbitration clauses.
Many separation/severance offers include a clause which states that any dispute under the agreement must be brought in arbitration. Like the rest of the provisions, it is ultimately up to you what you are willing to sign, but we typically encourage clients to fight against these provisions. It can be counter-intuitive, but if a dispute arises, our experience has demonstrated that employees can often have much more leverage without arbitration restrictions.
For more information about this article, please contact our employment attorneys at Carey & Associates, P.C. at info@capclaw.com or call 203-255-4150.
A record 22 million people were laid off in one month since the coronavirus pandemic shut down large portions of the U.S. economy as of the week ending April 16, according to the Wall Street Journal. The estimated current employment rate is 13.5%. But were all those layoffs really due to the corona virus or did employers use the pandemic as cover to get rid of employees for other reasons, maybe unlawful reasons. This is the big question many unemployed Americans are now asking. Please review the following frequently asked questions and see which applies to you.
FAQ: Were you recently furloughed, laid off, demoted or terminated due to COVID, but your co-workers remain employed?
FAQ: Is your Employer still operating and profitable, yet you were laid off or had your compensation reduced due to a business decision to reduce costs or eliminate your job position?
FAQ: Were other younger employees retained, while you were furloughed, laid off, demoted or terminated?
FAQ: Were you laid off or terminated and not offered any severance or insufficient severance?
FAQ: Were your unemployment benefits interfered with?
FAQ: If you were unable to continue to work because you were sick, because a family member was sick or because you have young children at home, were you permitted to take FMLA leave or were you instantly laid off or terminated?
FAQ: Were you the only one furloughed, laid off, demoted or terminated or due to COVID, even though your Employer is calling it a “reduction in force”?
FAQ: Do you think your Employer was looking for an excuse to get rid of you?
If you answered yes to any of the above, your seemingly straightforward COVID-based termination may be unlawful. Unfortunately, the majority of Employees in the U.S. are “at-will”. This means that employees are at the absolute and arbitrary whim of their employers and they may be demoted, terminated or otherwise treated adversely for any reason or no reason at all. The exception to the anything goes rule of an at-will employment arrangement is that employees may NOT be treated unlawfully.
If you have recently suffered an adverse change in the terms and conditions of your employment amidst the COVID-19 crisis, you may still have viable claims against your employer for unlawful or wrongful treatment. COVID-19 is not and should not be a catch-all excuse or defense for employers’ bad behavior and even a crisis of this magnitude does not relieve employers of their obligation to treat employees lawfully at all times. If something does not feel right to you about the circumstances of your change in employment, it is prudent to speak to an employment attorney and review the fact pattern surrounding your work situation. It is in your best interest to discern whether your employer may be using COVID-19 as a sham or cover for otherwise unlawful behavior.
Unlawful or wrongful acts that may entitle an employee to monetary damages for claims against their employer will usually fit in one of three scenarios. Employers actions can be shown to be unlawful if they:
1) violate or fail to comply with any legislative mandate, act or
statute;
2) breach a valid contract or agreement; or
3) discriminate, harass or retaliate based on a protected class trait.
COVID-19 does not give employers a green light to violate laws, ignore contracts or discriminate against employees, and a termination under any one of those scenarios might be a wrongful one.
Scenario 1 – Statutory Violations:
Employers must abide by all existing laws and statutes, especially as they apply to the COVID-19 pandemic. It is the employers’ obligation to stay abreast of and comply with all new mandates imposed and legislation enacted in response to COVID-19, including, but not limited to enhanced FMLA, the CARES Act and the expansion to the Unemployment Compensation Act. This is in addition the existing laws that have long protected employees from discrimination and retaliation such as Pregnancy, Sex Harassment, Sexual Stereotype, Disability, Age, Whistle Blowing and Family Medical Leave, to name just a few. Thus, any analysis of whether your termination was lawful and proper should begin with a review of the facts relative to the controlling law and any revisions and updates to those laws. If you identify any facts in the events leading up to your termination that just do not seem right, you may have uncovered the hidden basis for your termination. For example, you got a good review last fall and received a bonus in January, but in March you were terminated without explanation. The small window between the January bonus and March termination should be closely examined for any facts supporting bogus performance issues, favorable treatment given to other employees and not you and replacement by coworker who is substantially younger and lesser qualified. The examples are endless, but you get the gist. See further discussion below.
Scenario 2 – Breach of Contract:
Even an at-will employment arrangement must be considered in light of any existing employment contracts or agreements between the employer and employee. In addition to or in the absence of a formal written employment contract, Courts may look to such documents as offer letters, on-boarding communications, employee handbooks, published severance plans and emails in order to demonstrate the existence of any enforceable covenants between the parties that may speak to such topics as causes for termination, compensation, bonus, healthcare, long term incentive compensation and severance. Thus, where a valid contract can be established as to any of your employment terms, your employer is bound by those terms and any deviation may be an unlawful breach for which you might be able to seek and recover damages. So, if you have been terminated or otherwise caused to separate from your employer, even if you are at-will and even amidst the COVID-19 crisis, it is imperative that you review all of your documents in order to discern that you are being treated lawfully according to the terms that were agreed upon and promised to you.
Scenario 3 (THIS IS THE BIGGIE) – Discrimination Claims:
Even if you are an at-will employee who was let go as a result of COVID-19, you may still have a claim for wrongful termination against your employer if their decision to let you go was at all based on discriminatory motives. Discrimination is unlawful and where an adverse act is taken against you because of such protected traits as your age, gender, pregnancy, race or national origin, disability, perceived disability, associational disability or sexual orientation, you may have legal claims against your Employer.
In the absence of direct evidence of discrimination or the smoking gun as we call it, discrimination can be shown if you are a member of the protected class and you were treated adversely (demoted, furloughed, laid off or terminated) under circumstances which give rise to an inference of discrimination, i.e. circumstances that show discrimination was the substantial motivating reason for the adverse act taken against you. The way an employer can defend itself against such a claim and rebut that inference is to show that there was a “legitimate” lawful reason for the termination, such as performance issues and other cause such as a business decision or reduction in force.
Certainly, you can all see where this is heading. COVID-19 and the related financial fallout provides your employer with the legitimate business reason it needs to “lawfully” terminate you. However, this cannot be accepted at face value. In fact, if you are able to show that the supposed legitimate reason relied on by employer was a sham or cover for discriminatory motives, you may prevail on your claims against them in a severance negotiation. There are surely many situations where an employer, especially during these challenging economic times, needs to make a tough business decision to lay off employees or institute a reduction of force, and where their decision to do so is legitimate and truthful.
Employer May Have Used Covid-19 As An Excuse to Fire You
However, there are also many instances where certain employees are selected within the context of a business decisions, based on discriminatory motives. For example, the company makes the “business decision” to lay off only the older employees, or only the female employees or only the pregnant employees. In addition, there might not even be any explicit or formal business decision to reduce costs or a effectuate a reduction in force, but your employer may still feel safe engaging in discriminatory behavior knowing or hoping that any terminations taking place now will be viewed as a necessary and legitimate, due to the Covid-19 business climate. Again, we cannot allow employers to use this catch-all defense to what maybe culpable and unacceptable discriminatory behavior. If you see something, say something to an employment attorney.
There is no doubt that both employers and employees are presently finding themselves in the most difficult and tenuous circumstances. However, employers, in response to COVID-19, seemingly have absolute power and new founded legitimacy to make discriminatorily targeted employment decisions against their at-will employees, under the guise of a business decision. And this is very concerning and unlawful. If you are in a protected class because you are over the age of 40 or fall into any of the other class of protected traits discussed herein, and have seen a change to your employment that you do not believe was made as the result of a good faith business decision, cost reduction, reduction in force in response to COVID-19, or other legitimate basis, we encourage you to speak to an employment attorney immediately. You may be entitled to reinstatement, severance or increased severance or settlement dollars relative to your discrimination claims for wrongful termination or other possible improper acts by your employer.
Carey & Associates, P.C. is currently providing complimentary consultations for potential new clients who are experiencing any employment related issues or believe they might have possible employment claims, as a result of the COVID -19 pandemic. Feel free to contact our office if you need help with that or any of your employment matters.
Covid-19 and Noncompetition Agreements: 4 Situations Where They Are Not Enforceable.
If this blog article has caught your attention, you likely already understand what a non-compete is and might even be dealing with a non-compete situation presently.
Just to summarize, a non-compete is a restrictive clause or agreement whereby an employee agrees not to become employed by a “competitor” of their former employer or to otherwise “compete” with their former employer. These restrictive covenants are usually restricted to a reasonable length of time and geography.
Non-compete agreements can sometimes be found to be unenforceable if the restricted party can show that they are not “reasonable”. If the restrictive terms are deemed to be too broad, too long a period of time, or not necessary to promote a legitimate business reason, a court may void a non-compete.
Many states, including CT, have been exhibiting an increased distaste for non-competes, with courts more apt to find these agreements unreasonable and unenforceable. In light of current events, we envision an even stronger trend in this direction. There has already been and will continue to be company downsizing and dissolution, which means employees and executives will need to seek new employment or start their own business. We hope and expect Courts to favor employees, more than ever, during this economic crisis. We envision all of the current non-competes under which displaced employee’s may now find themselves, to be subject to scrutiny in the coming months as things continue to unfold.
While there are many scenarios where non-competes will need to be addressed in a Covid-19 context, below are four scenarios where you might want to promptly seek counsel regarding a non-compete
IF YOU ARE CURRENTLY UNDER A NON-COMPETE:
If you left your employment before (or during) the Covid-19 pandemic and are currently honoring a non-compete, all bets may be off in certain situations. For example, if your former employer or career happened to have been in what has now been termed an “essential business”, we would argue that your non-compete should be void. Courts often look to the totality of the circumstances when analyzing these agreements. As such, given the current outbreak and the need for essential workers in fields such as health care, banking, liquor stores and distribution, pharmacies, construction, marijuana dispensaries, to name just a few, one can make the argument that the public’s interest in having as many people working in these essential fields during this time, outweighs the former employers’ interest in enforcing a non-compete. Each state has their own designation of what constitutes an essential business.
In addition, arguments can be made that an act of God, such as a pandemic, can invalidate a contract or non-compete. We can advise you about this and have strategies for voiding your non-compete if you are an “essential” employee sitting on the sidelines honoring your non-compete, or even if you are not an essential employee based on the reasonableness of enforcing such an agreement when an act of God has wrecked so much havoc on employees and our economy.
IF YOU ARE CURRENTLY FURLOUGHED:
If you have been furloughed during the Covid-19 pandemic, but still employed, you might be worried that your furlough will at some point turn into a permanent separation from your job. If you currently have a non-compete with your employer and your furlough results in a termination, or you decide to leave during your furlough to accept other more gainful employment, it is important that you look to the specific terms of your non-compete in order to understand if it is enforceable under these unique circumstance. For example, some non-competes are not enforceable if you were terminated not for cause. In addition, if your furlough morphs into a termination or even a voluntary resignation, and you are subject to an enforceable non-compete for a period of time following your separation from your former employer, it is our position that your non-compete starts to run from the time you were furloughed not the time of your permanent separation. For example, if you are presently employed and have a 1 year non-compete from the time you ceased being employed, if you become furloughed for 2 months because of Covid-19, and then ultimately separated from your employer under these same circumstances, we will make the case that your 2 month furlough was “time served” and your remaining non-compete should only be for 10 months.
IF YOU ARE AN EMPLOYER LOOKING TO HIRE SOMEONE WITH A CURRENT NON-COMPETE:
Non-compete agreements often require the employee to inform any future employer about the existence of the non-compete. A future employer can be liable for interfering with a contract if they knowingly hire an employee who is under a non-compete. The new employer may be forced to fight an injunction and risk having to forfeit the recently hired employee, as well as subject to potential damages, if a court finds that a valid non-compete was in place and has been breached. But we will argue that all bets are off, and all of this is about to change in a Covid-19 world. We will fight for employers to show that the enforcement of the non-compete is unreasonable because people need jobs now and if an employer is willing to hire, they should not be restricted from doing so. There should be no obstacles to employers hiring at this time. Non-competes have been falling out of favor before Covid-19, and we believe that they will be even more frowned upon in the coming months. Courts will be reluctant to punish employers who are making efforts to getting back to business and providing employment even where there might be an existing non-compete.
IF YOU ARE A DISPLACED EMPLOYEE WHO IS BEING ASKED TO SIGN A NON-COMPETE IN ORDER TO SECURE NEW EMPLOYMENT:
Unfortunately, we are all finding ourselves right now in an “employers’ market” so to speak. While employers and their businesses are suffering immeasurably, they are still in the driver’s seat and the decision makers when it comes to hiring and firing. As such, if you are lucky enough to get new employment in this environment and an employer inserts a non-compete clause into your employment agreement, you might not have a great deal of leverage to fight back on this, as we would normally counsel our clients to do. If you find yourself in this situation, we still have strategies to protect you in lieu of fighting for the removal of the restrictive covenant at the outset and risking your new employment opportunity. We are having our clients sign affidavits contemporaneously with their employment contracts which speak to the extraordinary circumstances of obtaining employment amidst Covid-19. Contractual terms may be unenforceable if you can show that you signed under duress or that you did not intend to enter into a non-compete but had no choice. We believe that Courts will be reluctant to enforce non-competes entered into during this time and we have strategies such as the aforementioned affidavit that can be used at a later date if the employee needs or wishes to attempt to void a non-compete entered into during these unprecedented times.
Covid-19 and Noncompetition Agreements: 4 Situations Where They Are Not Enforceable. If you have questions or concerns about this article, please contact one of our employment attorneys at Carey & Associates, P.C. at 203-255-4150 or by email at info@capclaw.com.
