New Utah Law Limits Duration of Non-Compete Agreements

April 1, 2016 - Posted by: admin - In category:

taxes - No Responses

This new law does not outlaw non-compete agreements (as was rumored), but it does limit the duration of such agreements to 1 year.

First and foremost, despite what you may have heard on the street, non-competition agreements are NOT outlawed in Utah.  While it is true that some of our state legislators did try to head down this road (a real head-scratcher), reasonable minds prevailed and the new law which was passed by the state legislature and signed by Governor Gary Herbert on March 22, 2016 preserves the legality of non-compete agreements, but institutes a new one (1) year limit on the duration of the same (subject to various exceptions). This statute is H.B. 251 (Utah Code 34-51-101) and is formally known as the Post-Employment Restrictions Act.  As an employer or employee, what do you need to know about this new law?  Here are a few highlights:

  • Non-competition agreements entered into on or after May 10, 2016 can prevent an employee from competing with his/her former employer for a period not to exceed one (1) year.  A non-compete agreement which restricts the right of an employee to compete for a period longer than one year is void (i.e. not enforceable).
  • This bill is NOT retroactive and therefore it does not nullify agreements entered into prior to May 10, 2016.
  • If you are an employer, you may be thinking that it would be wise to sign up all of your employees to 5 year non-competes prior to May 10, 2016. While you certainly should review the current state of your employee non-compete agreements, please know that this new law will likely have an impact on how courts enforce all non-compete agreements in the future, even though this law does not, by its terms, have direct application to agreements in existence prior to May 10, 2016.
  • “Reasonable” severance agreements, non-solicitation and non-disclosure covenants are identified as exceptions to this new law–in other words, the 1 year limit is not applicable to these things.
  • The Act provides that an employer can be held liable for an employee’s (i.e. former employee’s) costs associated with arbitration, attorney fees and court costs and actual damages resulting from an employer seeking to enforce a post-employment restrictive covenant which is determined (seemingly by a court or an arbitrator) to be unenforceable.  While it might seem that these employee remedies were intended for post May 10, 2016 non-compete agreements, the statute does not restrict such remedies only to “new” non-competition agreements.  Therefore, employers should be very careful in seeking to enforce non-competition agreements in the future, whether or not such agreements were in existence prior to May 10, 2016.

In summary, the landscape of employment law has changed in Utah and if you own a business, you should be aware of these changes and act accordingly.  Please contact us with questions.

Leave a Reply