If you’ve ever wondered how Utah companies use non-compete agreements, or what employees think of post-employment restrictions, you’re in luck. Thanks to a new comprehensive study funded jointly by the Utah Legislature and private donations, we now have a fascinating look into the use and perception of non-compete restrictions in Utah.
Legislative Working Group Prompted Non-Compete Survey
The study came about following the 2016 enactment of the Post-Employment Restrictions Act, a new Utah law that limits the length of non-compete agreements between employers and employees to one year after the end of employment. A working group that had led negotiations with that bill suggested getting balanced, concrete data on which to assess whether future revisions to the law were needed.
The Salt Lake Chamber and the Utah Legislature teamed up with chambers across the state, industry associations, and the Labor and Employment Section of the Utah State Bar, to create a survey and identify organizations and employees from across the state to participate.
The goal of the study, conducted over several months by the Cicero Group, was to gather research to inform policymakers and business leaders in our state. The results of the study provide insightful data for Utah employers on how non-compete agreements are used and perceived in Utah, as well as how non-compete legislation may affect the business community.
Employer Non-Compete Survey Results
Private employers and employees from a variety of industries in Utah took part in the survey. Results were tabulated from 937 employer respondents and 2,000 individual employee respondents.
Ninety percent of employer respondents agreed that non-compete agreements should be allowed in Utah as long as they are reasonable and for a legitimate purpose. Almost half of the employer respondents stated they ask at least some of their employees to sign a non-compete agreement. In comparison, 68 percent ask some employees to sign non-solicitation agreements while 38 percent ask some employees to sign confidentiality or non-disclosure agreements. When asked if signing a non-compete agreement was a condition of employment, 82 percent of those employers who use non-compete provisions responded “yes.”
Looking at the type of positions for which companies ask employees to sign non-compete agreements, the highest response was for C-level executives with 37 percent. The next highest positions using non-competes included senior management positions at 35 percent, sales roles at 32 percent, salaried professional roles at 32 percent and salaried mid-level management positions at 28 percent. Larger employers used non-compete agreements at a rate almost double that of small employers.
As to the maximum length that a non-compete should remain in effect following employment, 29 percent of employer respondents favored one year or less, 22 percent answered two years, 11 percent responded with three years and just 3 percent favored five years.
Employers were also asked about violations and enforcement of their non-compete agreements. Thirty-seven percent of employer respondents stated that they have never had to address a violation of a non-compete provision with an additional 50 percent responding that they address violations less than once per year. The top actions taken to enforce a non-compete were making a verbal compliance demand with the former employee, sending the employee a cease-and-desist letter, and sending the new or future employer a cease-and-desist letter. Only 17 percent of employer respondents indicated they had filed a lawsuit over a non-compete agreement.
When it comes to hiring an individual who has a non-compete agreement with their existing or former employer, 35 percent of the employer respondents stated they would not hire an individual who has a non-compete restriction with a competitor. Additionally, another 42 percent reported that they would only hire if the competitor provides a release of the non-compete provisions.
What Do Employees Think of Non-Competes?
Employee survey results offer similarly useful data. First, 74 percent of employee respondents agreed that reasonable non-compete agreements should be allowed in Utah. Just over one-half of employees responded that they would sign a non-compete agreement if the terms were fair. Only 5 percent reported that they would refuse to work for an employer that required non-compete restrictions.
The survey asked employees who had a non-compete agreement with their current employer whether they believed their non-compete was fair. Forty percent thought their non-compete was completely or moderately fair. An additional 34 percent answered that they thought that their non-compete was somewhat fair. Only about one-quarter responded that their current non-compete was slightly unfair or not fair at all.
Thirty-five percent of employee respondents indicated that they had been asked to sign a non-compete agreement at some point in their career, although only 18 percent stated that they have a non-compete agreement with their current employer. Employees in higher salaried positions report they have signed non-compete agreements at a higher percentage than those in lower paid positions.
The Future of Non-Compete Legislation in Utah
With the study conducted less than one year after Utah passed its non-compete law, numerous questions were designed to determine the impact of non-compete legislation on employers and employees as well as businesses considering moving into Utah.
Surprisingly, 70 percent of employee and 57 percent of employer respondents stated that Utah’s new non-compete bill would have little to no impact on their organization. This was fairly encouraging, as it appeared to indicate that the new law struck an importance balance between employer and employees and mirrored actual practice in the state.
The data also showed room for further consensus on areas of concern for the businesses using non-competes and those that desire to limit potential abuses. Specifically, efforts could be made to enhance or focus on other protections for intellectual property, as nearly 70 percent of employer respondents expressed concern that the legislation impacted their ability to protect proprietary ideas, inventions and processes. Additionally, addressing concerns about using non-compete agreements with low wage earners, and perhaps requiring employers to provide notice of non-compete agreements at the time a job offer is made, are areas that may be receiving attention.
Moving forward, businesses should take sufficient time to consider this data, review their current practices and actively participate in upcoming discussions on these issues leading into the 2018 legislative session.
Bryan Benard is a partner at Holland & Hart LLP’s Salt Lake City office. Benard was involved in the working group that worked on the 2016 Utah non-compete law and this study. Benard advises clients regarding employee relations, employee contracts, discrimination and leave issues, with an extensive focus on non-compete and non-solicitation agreements. He also litigates employment cases at the federal, state, and administrative level. Benard may be reached at BBenard@hollandhart.com or 801-799-5833.
Michael Parker is the vice president of public policy for the Salt Lake Chamber. In this role he enhances the relevance, reputation and relationships of Utah’s business leaders with elected officials, business and community leaders throughout the state. He has the specific task of planning and implementing public policy initiatives. Parker can be reached at firstname.lastname@example.org