Connecticut Supreme Court “clarifies” mid-employment consideration for noncompetes

When noncompetes are entered at commencement of employment, consideration is typically satisfied by the job. No surprise, there are outliers where something more is required (e.g.Illinois and Massachusetts), even if it just the passage of time (see Maine, requiring at least one year of employment).

The more common divergence among the states involves whether something more than “mere” continuation of employment is required as consideration for a noncompete or other restrictive covenant entered into during the course of employment.

Though the majority of states permit continued employment to serve as consideration, the law varies significantly and, in many states, is not entirely clear.

That was (and remains) true for Connecticut, where, until last week, the Connect Supreme Court last addressed the issue in 1934 in Roessler v. Burwell.

In that case, the court held that “a promise of indefinite, continued employment for an at-will employee in exchange for the employee’s promise not to compete constitutes adequate consideration to form an enforceable agreement.” But there, the continued employment that provided the consideration for the mid-term noncompete lasted for four years.

In the intervening years, trial courts in Connecticut had tended to follow Roessler, though some did not. The result was that it seemed likely that continued employment was sufficient, but companies could not entirely count on it.

Enter Dur-A-Flex, Inc. v. Dy — the first time in 90 yeas where the issue made its way back to the Connecticut Supreme Court, providing the prospect of clarity. Sadly, that clarity has not arrived.

In a July 2, 2024 decision, the Connecticut Supreme Court reaffirmed the rule that continued employment can serve as consideration for a noncompete or other restrictive covenant. However, while the court was unequivocal that continued employment can be sufficient consideration, it was quite equivocal about its commitment to the rule and under what circumstances mere continued consideration without more would be deemed sufficient.

As to its continuing commitment, the court pointed out that Roessler had been “decided in a different era,” that neither party had asked the court to overturn it, and that the court was disinclined to overturn it sua sponte. Accordingly, the court left Roessler as the governing law.

But the court’s dicta in a footnote is enlightening1:

We recognize that the noncompete agreement did not expressly require the plaintiff to employ [defendant] for any specific duration, and, therefore, it would appear that he continued to be an at-will employee after the agreement was executed. In addition, the agreement provided that it “constitute[d] the entire understanding and agreement” between the parties and that “[t]here [were] no other agreements, conditions or representations, oral or written, expressed or implied with regard thereto.” It therefore seems unlikely that there was adequate consideration for the agreement.

It is hard to square that footnote with the premise that continued employment for an “indefinite” period can be sufficient consideration. Rather, the court seems to be suggesting that the employer must provide a promise of continued employment for some amount of time. In that regard, the court noted, “because [defendant] was an at-will employee, the plaintiff’s forbearance of its right to terminate his employment could be valid consideration if it altered his at- will status.” (Emphasis added.)

So, while the court clarified that continued employment can be sufficient consideration, the circumstances under which it will be sufficient are clear as mud.

Expect lots of litigation on that issue until the issue makes its way back to the Connecticut Supreme Court or the Connecticut Legislature.

* * *

Firm resources: 

We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):

We hope you find all of these resources useful. More are coming.

And please note that we are grateful for all of the input we’ve received over the years, and welcome any suggestions for improvements that you may be willing to share.

* * *

*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills around the country and helping me make sure that all of our resources are current and accurate! 

 ____

[1] As my law school professor Wally Miller used to say, “All wisdom is in the footnotes.”