Making Connecticut a leader among states in curbing the misuse of noncompete agreements

Testimony to the Connecticut Labor & Public Employees Committee
Regarding SB 906, An Act Concerning Noncompete Agreements
March 4, 2021

Terri Gerstein
Director, State and Local Enforcement Project, Harvard Labor and Worklife Program
Senior Fellow, Economic Policy Institute

To the members of the Labor & Public Employees Committee:

Thank you for the opportunity to provide testimony regarding SB 906. I provide this testimony in my personal capacity. I am the Director of the State and Local Enforcement Project at the Harvard Labor & Worklife Program,1 and a Senior Fellow at the Economic Policy Institute.2

From 1999 through early 2017, I enforced workplace laws in New York, including as a Deputy Commissioner overseeing wage and hour enforcement in the New York State Department of Labor, and later as Labor Bureau Chief in the New York State Office of the Attorney General (OAG). I became familiar with noncompete agreements (“noncompetes”) through several OAG investigations, and I have researched and written about them since leaving government.3

Our OAG noncompete cases involved employers in a range of industries, including the Jimmy John’s sandwich chain,4 Law 360 5 (the legal news website), and Examination Management Services, Inc. (EMSI),6 a national medical information services company. After I left the office, the OAG handled more noncompete cases, including one involving a payment processing firm 7 and a joint case (with the Illinois Attorney General’s Office) involving the shared work-space company WeWork.8

Economists have documented: employers’ extensive use of noncompetes even where they’re unenforceable; the lack of bargaining that typically precedes employees signing; and noncompetes’ adverse impact on job mobility and wages. Many harmful effects of noncompetes are less readily calculable. Numbers don’t convey what it means for a newly-minted journalist or a hard-working janitor to be stuck in a job they don’t like, only because they fear they’ll be sued if they get a new job. And we don’t know how many workers continue to experience workplace violations, like discrimination, harassment, or wage theft, because a noncompete makes them feel they can’t leave. By allowing someone’s boss to stop them from getting a new and better job in their field, noncompetes can have a profound impact on a person’s life. For example, the worker in our EMSI case was a phlebotomist who traveled throughout the state drawing blood for prospective insurance policyholders. Her employer used her noncompete to try to block her from a new job requiring far less travel, allowing more time at home.

In over two decades of enforcing and studying workplace laws, I have repeatedly seen the stark disparity of bargaining power that leads workers to sign noncompete agreements, whether they’re fair or enforceable or not. This concern is exacerbated during a period with high unemployment: workers have little choice but to sign if they want a job. And with so many workers unemployed, it is even more important to eliminate barriers to people getting jobs.

SB 906 will curb the most harmful use of noncompetes. Five key features include:

SB 906 prohibits unnecessary and inappropriate noncompetes, rather than merely rendering them unenforceable. This is critical. If disallowed noncompetes are merely unenforceable, employers have little disincentive for including them. The employer’s worst-case scenario is that a court doesn’t uphold the noncompete; meanwhile, the employer has benefitted from the noncompete’s chilling effect on employees. Moreover, most employers want to follow the law. Making coercive and inappropriate noncompetes prohibited rather than just unenforceable conveys a normative signal and provides clear guidance that overreach should not be attempted.

SB 906 protects the workers who need it most. Many people in our country who are not minimum wage workers still live paycheck to paycheck; they are not high earners with strong bargaining power at work and still need protection. SB 906 covers those earning up to three times the state minimum wage, also adding a helpful requirement that workers covered by the state minimum wage law (most notably, those who are not subject to the executive, administrative, professional exemption) may not be subject to noncompete agreements. The harmful impact of noncompetes affects far more than just low-wage workers, and there should be a high bar for letting companies prevent working people from earning a livelihood in their field. SB 906 laudably also protects independent contractors.

SB 906 contains meaningful vehicles for enforcement, by allowing the attorney general to take action. It also creates a private right of action, with reasonable attorney’s fees and costs if the worker prevails; this will enable workers to find lawyers to represent them. The proposal also ensures that workers will not be forced to litigate in a far-flung venue.

SB 906 increases fairness in relation to those noncompetes that are permitted. It requires advance notice to workers, as well as payment of workers while they are covered by noncompete agreements (also known as “garden leave”). Garden leave is also beneficial as it requires employers to seriously consider whether they truly need a noncompete, or whether a less restrictive alternative would allow them to meet the same goals.

SB 906 allows for penalties for violations, which are critical for deterring violations.

As with any legislation, there are tweaks that could be considered. For example, it would be helpful if the bill more squarely applied to noncompetes in existence as of July 1, 2021, by, for example, setting a date after which such legacy noncompetes would automatically lapse if not renewed.

Overall, SB 906 would greatly protect the workers of Connecticut from the harms caused by noncompete agreements and would enhance workers’ freedom to change jobs. It would significantly diminish abusive use of such covenants. This bill, if passed, would make Connecticut a leader among states in curbing the misuse of noncompete agreements.