AND NON-COMPETE AGREEMENTS
DO THEY PASS THE REASONABLENESS TEST?
Arthur K. Engle, Esq.
is known as The Information Age, and for good reason: with
the advent of the Internet and global communications, information
is just a phone call or a mouse click away. With such unprecedented
access to information, businesses employ various means to
protect their private information, in particular their trade
secrets. The reason is simple: in today’s competitive
market, a company’s trade secrets can mean the difference
between success and failure.
One of the ways businesses try to protect their private information
is by limiting what employees can do with that information.
Thus, employers will often require that employees sign either
a non-compete agreement (also known as a covenant not to compete),
or a confidentiality agreement (also known as non-disclosure
agreement), or both, as a condition of employment.
A non-compete agreement seeks to set limits on what work an
employee may do upon leaving that employer. The purpose of
such restrictions is to prevent the former employee from using
knowledge or information acquired during the employment to
compete with the former employer. A non-compete agreement
may be specific in prohibiting one from working in a particular
competing business or market for a certain length of time.
Or it may be more general in prohibiting one from working
in a particular city or area of the country in any kind of
business, again usually for a certain length of time. In the
absence of such a non-compete agreement, a former employee
may freely compete with a former employer.
A confidentiality agreement, on the other hand, imposes no
limits on the kind of work one may do or where one may work.
Rather, it merely prohibits an employee from disclosing certain
private information of the employer.
Non-compete agreements are enforceable only if they impose
reasonable restraints on employment. There are generally five
criteria for determining the reasonableness of a non-compete
agreement: (1) the duration of the restriction; (2) the geographic
scope of the restriction; (3) the degree of protection afforded
to the employer; (4) the extent to which the restrictions
affect the employee’s ability to pursue a trade; and
(5) the extent of interference with the public’s interest.
Until recently, there were no Connecticut cases holding that
this same reasonableness test applies to confidentiality agreements.
However, in a case of first impression, a Connecticut trial
court recently held that confidentiality agreements are subject
to the same test. The court noted that “a person should
not be able to accomplish through some other agreement what
would be a restraint of trade violative of public policy if
done through a non-compete agreement.”
The court held that in applying the reasonableness test to
determine the validity of a confidentiality agreement, a court
should take into consideration the purpose of the confidentiality
agreement and the specific information sought to be protected.
The agreement should be no more restrictive than necessary
to achieve its purposes. Historically, courts have viewed
confidentiality agreements more favorably than non-compete
agreements because the latter act as restraints of trade and
employment while the former aim to restrict only disclosure
of information, not employment opportunities. While lack of
geographical or time limitations will not make a confidentiality
agreement presumptively unenforceable, it is certainly a factor
for the court to consider.
The full impact of this Connecticut trial court decision is
not yet known. While a trial court’s decisions are not
binding on other courts, Connecticut courts often look to
trial court decisions for guidance, especially where, as here,
the decision is one of first impression. Thus, while other
courts need not apply a reasonableness test to confidentiality
provisions, they are more likely to in the wake of this recent
Therefore, before executing confidentiality agreements, it
is best to have legal counsel evaluate their compliance with
this reasonableness test. Are they reasonable in geographic
scope? Do they last no longer than necessary? Are they too
broad, such that they limit an employee’s ability to
pursue a trade?
Overbroad or overly restrictive confidentiality agreements
do a disservice to both employers and employees. If such an
agreement is deemed to be overly restrictive and therefore
unenforceable, it will not provide the protection for which
it was created and will leave employers vulnerable. On the
other hand, overly restrictive agreements are prejudicial
for employees who may feel unable to pursue a trade without
violating the restrictions. Such employees may be faced with
the tough decision of either limiting their career opportunities
or ignoring the restrictions and risking a lawsuit.
By making sure that their confidentiality agreements comply
with this reasonableness test, employers can be more confident
that such agreements are enforceable. Thus, they can better
protect their proprietary information and trade secrets against
unwanted disclosure. In turn, by negotiating reasonable confidentiality
agreements, employees can keep their employment opportunities
open and avoid unnecessary lawsuits.
As the old adage goes, “Forewarned is forearmed.”
Nowhere is that more true than in today’s information
ARTHUR K. ENGLE is
an associate with the firm. He practices in the areas of commercial
litigation and employment law.
Mr. Engle graduated with honors from Harvard College in 1988,
with a B.A. degree in psychology. He received his Juris Doctor
degree from Fordham University School of Law in 1994. Mr. Engle
is admitted to the bar of the State of Connecticut and the U.S.
District Court, District of Connecticut, and is a member of
the Connecticut and Regional Bar Associations. He is also a
member of the Darien Rotary Club and is Chairman of its International