Many employers in Utah use non-competition agreements to protect their confidential information, customer relationships and investment in employee training and development. In a somewhat surprising move, the usually employer-friendly Utah State legislature has signaled its willingness to join California and a handful of other states in attempting to regulate these kinds of agreements.
The Utah Legislature is currently considering two bills that would significantly limit a Utah employer’s ability to structure and use non-competition agreements.
HB 88 would place new statutory restrictions on the contractual provisions employers could include in their agreements. The bill would, for example, make a non-competition agreement unenforceable unless an employer provided additional consideration (beyond continued employment) when it was executed. The bill would also make unenforceable any non-competition agreement for an employee terminated without cause within one year of signing the agreement. Finally, the bill would allow a court to award attorney fees to an employee who prevails in a lawsuit brought by an employer or former employer to enforce a non-competition agreement.
While HB 88 raises some concern for employers, HB 251 will be of even greater concern. Unlike HB 88, which limits the use of non-competition agreements, HB 251 would actually prohibit any agreement that would prevent an employee from working for a competitor after leaving a company. Similar to HB 88, HB 251 would allow a court to award attorney fees to an employee who successfully challenges a non-competition agreement. Moreover, this bill seems to be gaining more traction at the Legislature, and could soon be scheduled for a vote in the Utah House of Representatives.
Non-competition agreements are widely used by many employers in Utah and elsewhere. Employers understand that employees can learn important information about an industry or even a specific business and can develop important customer relationships during their employment. Consequently, they use non-competition agreements strategically to protect against having that experience and those customer relationships used unfairly to compete with them when an employee leaves the company. The use of these agreements as a tool by employers would be significantly curtailed by HB 88 and ended as a legitimate business practice altogether by HB 251.
Most immediately, the fate of these bills is in the hands of Utah’s legislators. Business groups such as the Salt Lake Chamber of Commerce, concerned about the impact, are in process of gathering data about Utah employers’ use of noncompetition agreements. The next step for employers interested in influencing the outcome of the legislation will be to participate in the political process and contact their state legislators.
We are monitoring both HB 88 and HB 251 closely, and will provide World of Employment readers an update on the business practices impact, should either bill become law.