The Utah Legislature is considering multiple pieces of legislation, which address the issue of post-employment restrictions in employer/employee contracts. Specifically, H.B. 251- Post-Employment Restrictions Amendments has gained the most attention and engagement from Utah’s business community.
What does H.B. 251 do and what is the Sponsor trying to accomplish?
The Sponsor, Rep. Mike Shultz, desires to ban all post-employment restive covenants, or non-competition agreements, that prevent an employee from working for a competitor after employment. The Sponsor believes non-competition agreements disrupt a growing economy and increasingly high-skilled labor market, and can force skilled workers and start-up businesses out of state.
Why do Utah employers use non-competition agreements?
Currently, Utah employers may require non-competition agreements for a variety of reasons, including protecting sensitive processes, technologies, and other trade secrets and information. The more competitive a field, the more likely employers will ask prospective employees to sign non-compete agreements. These employers do not want key employees to turn around and work for their competitors — or to become consultants or freelancers either.
What do other states do in regards to non-competition agreements?
The elimination of non-competition agreements would bring Utah in to a very small subset of states (3) including: California, North Dakota and Oklahoma, which ban such agreements. Many states (23) have statutes that guide such agreements, but have largely preserved an individual’s right to contact and an important business protection. It should be noted that Utah does not have any statutes or regulations governing non-competes generally. Since the agreements are private contracts, they generally are enforced through lawsuits.
How do Utah courts regulate non-competition agreements?
Utah courts have addressed the limits of these non-competition agreements and articulated specific guidelines for employers and to protect employees. These guidelines protect the unsophisticated or inexperienced employee from non-competition agreements that have no relation to the employer’s legitimate business interest and are designed solely to restrain competition. To be enforceable, Utah courts require non-competes to be:
- Supported by consideration. (New or continued employment or other employment benefit)
- Negotiated in good faith. (Entered into for a legitimate purpose and not just to keep the employee from competing with the former employer.)
- Necessary to protect the goodwill of the business.
- Reasonable in duration and geographic area. (Determined cases by case on the bases of the employer’s business interest and employee’s services.)
- Not common calling: Employees who perform services that are: special, unique, or extraordinary.
Any attempt to legislate or further restrict employers’ use of non-compete agreements would be a major policy shift and may have broad implications for our state’s business climate.
How is a non-compete different than a confidentiality/non-disclosure agreements (NDAs)?
A non-competition or non-compete agreement, is typically not limited to specific contacts, but rather restricts an employee after being let go or quitting from engaging in employment competitive to the business of their previous employer. Frequently, non-competition clauses restrict competition for a specific amount of time in a specific geographical area; however, in order to be enforceable, these restrictions must be reasonable. Breaching a non-competition clause puts both the employee and any new employer at risk of being sued.
A confidentiality/non-disclosure agreement simply restricts and prevents the employee or contractor from disclosing company trade secrets or other confidential information that’s defined within the agreement during the relationship and once the employment relationship is ended.
A non-compete is an added layer of protection for an employer to ensure that an employee cannot violate a NDA and cause material damage to their previous employer.
How is a non-compete different than a non-solicitation agreement?
A non-competition or non-compete clause, is typically not limited to specific contacts, but rather restricts an employee after being let go or quitting from engaging in employment competitive to the business of their previous employer. Frequently, non-competition clauses restrict competition for a specific amount of time in a specific geographical area; however, in order to be enforceable, these restrictions must be reasonable. Breaching a non-competition clause puts both the employee and any new employer at risk of being sued.
A non-solicitation agreement typically restricts or restrains and employee’s ability to contact present, past, or sometimes even prospective clients of the employer. Often it will prohibit an employee from contacting these clients for the purpose of selling them a product or service after the employment has ended. Breaching a non-solicitation clause puts both the employee and any new employer at risk of being sued.
A non-compete is an added layer of protection for an employer to ensure that an employee cannot violate a non-solicitation and cause material damage to their previous employer.
What does H.B. 88 do?
Changes enforcement of non-compete agreement with an existing employee, including changes to timing of enforcement and consideration provisions.
What does H.B. 71 do?
Establishes a legal interest rate based on the federal post judgment interest rate for a contract or other chose of action prior to judgment.