Business Law Articles
By Daniel B. Fitzgerald, Esq.
Brody Wilkinson PC
Connecticut has enacted a new statute that limits the scope of non-compete agreements (or covenants not to compete) entered into, amended or renewed on or after July 1, 2016 that restrict the employment of physicians.
Covenants not to compete have traditionally been governed by common law. The primary test for the enforceability of a restrictive covenant is whether it is reasonable. Connecticut courts typically consider the following five factors in evaluating the reasonableness of a restrictive covenant in an employment context: (1) the length of time that the restriction operates; (2) the geographical area covered; (3) the fairness of the protection accorded to the employer; (4) the extent of the restraint on the employee’s opportunity to pursue his occupation; and (5) the extent of interference with the public's interests.
Public Act 16-95 essentially incorporates the above-mentioned common law factors but specifically prohibits the restriction of physician’s competitive employment activities for more than 1 year and beyond 15 miles from “the primary site where the physician practices” as defined in the statute.
The new statute further provides that a non-compete entered into, amended extended or renewed after July 1, 2016 is not enforceable unless (i) such agreement was made in anticipation or as part of a partnership or ownership agreement; and (ii) such agreement expires and is not renewed, unless the prior to expiration, the employer makes a bona fide offer to renew the agreement on the same or similar terms and conditions. In addition, the statute provides that a non-compete is not enforceable if the employer terminated the employment or contractual relationship, unless terminated for cause.
The new statute does not appear to apply to dentists, but is limited to medical doctors and surgeons. (Oral surgeons may, however, be covered by the new law). Nevertheless, the 1 year and 15 mile radius provisions are instructive when entering into non-compete agreements with other medical personnel, as these limits have been deemed acceptable by the General Assembly.
Lastly, the new law only applies to non-compete agreements that are part of an employment or contractual relationship between the parties. Accordingly, it would not restrict non-competes that are signed as part of the sale of a business unless the sellers are being retained by the buyers to provide employment or consulting services to the business after the closing.