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Court Limits Statutory Claims Based on Non-Competition Agreement

Posted February 6, 2016
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I blogged last month here about a recent Connecticut Superior Court case, which showcased some typical issues with non-competition and non-solicitation agreements.  Another interesting part of the decision that caught my attention was the court's discussion about the interplay between two Connecticut statutes: CUTPA and CUTSA (don't you love acronyms). CUTPA is our unfair trade practices act, and CUTSA is our uniform trade secrets act.  Employers almost always plead violations of these two laws when a former employee breaches restrictive covenants in an employment agreement.  But this court held that an employer cannot bring a CUTPA claim based upon the same conduct that forms the basis of the CUTSA claim.  Essentially saying that, unless the CUTPA claim (or any tort claim) is based upon wrongful conduct separate from misappropriation of trade secrets, the claims fails as a matter of law. The basis for the court's reasoning was a preemption clause in the statute.

One problem with this analysis is that parties under Connecticut's pleading rules can plead in the alternative, meaning assert legal theories that may be inconsistent. Also, many trial judges have allowed CUTPA claims based upon misappropriation of trade secrets. And many cases from our appellate courts have addressed cases with violations of both statutes being in issue. And I have found no Connecticut appellate court case that holds a plaintiff cannot bring claims under both statutes for trade secret violations.

This court also held that the employer could not bring a separate unjust enrichment claim despite CUTSA's specific allowance in section 35-53 saying a plaintiff can recover for unjust enrichment.  One example comes to mind.  We counsel employers to provide additional consideration (I've mentioned this here) when asking a current employee to sign a non-competition or non-solicitation agreement.  In this case the employer paid the employee an extra $50,000 to sign the agreement.  Well that employee is certainly unjustly enriched by keeping the money and then violating the agreement.

Our advice:  Lawyers should continue to assert CUTPA claims when an employee violates restrictive covenants, but at the same time rely on facts independent of the trade secret violations.  CUTPA claims have survived when an employee breaches the duty of loyalty for example, and acts way outside the scope of his employment such as starting a competing business or wrongfully diverting business to another company the employee owns.

About the Author

Business and Employment Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.