If your company uses non-compete agreements or hires employees subject to non-compete agreements, you need to pay attention to new developments in the law. In the 2016 Legislative Session, the Utah Legislature passed the "Post Employment Restrictions Amendments" restricting non-compete agreements.  Utah Code 34-51-201 to -301. Governor Herbert signed the law in March 2016 and it applies to any non-compete agreements entered into starting May 10, 2016. After this date, non-compete agreements cannot exceed one year after the last day of employment. If an agreement is over the one-year limitation, the agreement is "void" suggesting that a court cannot fix the agreement by limiting it to one year.

Also, if an employer tries to enforce a non-compete which is invalid, the employer is liable to the employee for arbitration costs, court costs, and/or attorneys’ fees. This means that an employer has to use caution in deciding to enforce an agreement as these costs and fees can really add up.    

The new law is muddy when it comes to the issue of non-competes in the sale of a business or in a severance agreement. The statute says that it does not “prohibit a reasonable severance agreement mutually and freely agreed upon in good faith at or after the time of termination that includes a post-employment restrictive covenant.” However, a severance agreement “remains subject to any requirements imposed under common law.” Similarly, the statute provides that it “does not prohibit a post-employment restrictive covenant related to or arising out of the sale of a business if the individual subject to the restrictive covenant receives value related to the sale of the business.” But the statute does not say whether the one-year limitation applies to severance agreements or in the sale of a business. 

The law specifically does not apply to nonsolicitation, nondisclosure or confidentiality agreements. Businesses are free to continue to use these types of clauses, subject to the common law, to protect their customers and information. 

Takeaways:

•    Non-compete agreements entered into on or after May 10, 2016 must be limited to one year
•    If non-competes are not limited to one year they are “void” and likely will not be fixed by the court
•    The common law (case law) still applies to determine if non-competes are reasonable in other ways such as the geographic scope
•    The law is unclear about whether this one-year non-compete restriction applies to severance agreements or in the sale of a business
•    Nonsolicitation, nondisclosure, and confidentiality agreements are unaffected by the new law
•    Employers are liable for costs and attorneys’ fees if they seek to enforce an invalid non-compete agreement

Because of this significant change in the law, Parsons Behle & Latimer will be holding workshops about the new non-compete law.  Workshops will be held on June 14, 15 and 16 from 8:00 – 9:00 a.m. at Parsons Behle & Latimer, 201 S. Main Street, Suite 1800. To sign up, please email Jeremy Jones by clicking HERE.

Please contact Christina Jepson if you have any questions or would like additional information.

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