Publication

February 8, 2017Client Alert

Bill Introduced to Further Limit Non-Competes in Utah

The Utah State Legislature is again seeking to limit employers’ ability to make and enforce non-compete agreements. As a refresher, last year, the legislature sharply divided the Utah business community by proposing to ban non-compete agreements in the state altogether with HB 251. Ultimately, the final version of HB 251 that passed last year and became law did not ban non-compete agreements completely, but it limited non-compete periods to just one year, except in the case of a sale of a business.

This year, Representative Brian M. Greene has introduced HB 81, entitled “Post-employment Restrictive Covenant Amendments.” Although HB 81 does not propose to ban non-compete agreements, it is a more subtle approach to undermine their use in the state. This new bill proposes the following changes to the law:

  • Under HB 81, an employer would not be able to enforce a non-compete agreement if the employee was an existing employee at the time the contract was executed and the employee did not receive additional consideration, such as an increase in wages or a promotion. The bill makes explicit that, contrary to well-established law, continued employment would not be sufficient consideration to support a non-compete agreement.
  • Additionally, an employer would not be able to enforce a non-compete agreement if the employer terminates the employment of the employee without cause within one year of the date on which the employee executes the post-employment restrictive covenant.
  • The new bill proposes imposing a penalty of three times the amount of actual damages if an employer seeks to enforce a non-compete agreement and it is determined that the non-compete agreement is unenforceable. The language regarding damages is mandatory, not permissive. The existing statute already required that the employer be liable for actual damages. Tripling actual damages is a significant change that will likely deter many employers from seeking to enforce their non-compete agreements.
  • HB 81 also adds a statute of limitations. An employer will not be able to bring an action to enforce a non-compete agreement after the day on which the time period stated in the non-compete agreement expires. Nothing in HB 81 addresses situations in which the former employer does not discover the competitive activities of the former employee until after the period has lapsed.

Although HB 81 does not yet have a sponsor in the Senate, it is progressing through the House and moved out of the House Business and Labor Committee on February 6, 2017, by a 6-5 vote. The progress of HB 81 is surprising, given that Rep. Greene was not involved in the passage of HB 251, and there was an understanding between legislators and the business community that no further action would be taken regarding non-competes until the legislature received results of a research study that had been commissioned to study the impact of non-compete legislation. The findings of that study are not scheduled to come out until February 24, 2017.

Last year, HB 251 sparked significant opposition in the business community, which led to public meetings and a dramatic modification of the original bill. There has been little opposition or public discourse, however, related to HB 81. Employers who seek to maintain the status quo regarding their rights to make and enforce non-compete agreements should contact their legislative representatives immediately to voice their concerns.

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