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February 22, 2016Client Alert

What Utah Employers Should Know about House Bill 251

As discussed in our previous alert on February 12, 2016, House Bill 251—the Post-Employment Restrictions Act—is making its way through the Utah State Legislature and, if passed, would outlaw non-compete agreements in the State of Utah. The bill is sponsored by Representative Mike Schultz, a Republican located in Hooper, Utah.

H.B. 251 easily passed through the House Business & Labor Committee with a “favorable recommendation” by a unanimous vote of 11-0 on February 11, 2016. Our understanding is that negotiations, led mostly by the Utah Chamber of Commerce, are ongoing with the Bill’s sponsor and its supporters, but those negotiations center mostly around further defining trade secret and non-solicitation agreements, and not whether non-compete agreements themselves will be abolished in the State of Utah.

TALKING POINTS IN OPPOSITION TO HOUSE BILL 251

  1. Non-competition agreements protect not only the trade secret and confidential information of employers, but they protect a company’s goodwill.
    • A major point being made in defense of the bill is that employers should still be able to require employees to sign confidentiality and non-solicitation agreements.
       
    • We recommend that employers have employees sign all three types of agreements, including non-compete, confidentiality and non-solicitation. Each separate agreement protects different interests of the employer.
       
    • Non-compete agreements protect the goodwill of a company, which is something that a non-solicitation and confidentiality agreement cannot entirely do. A company’s protectable interests do not just include its trade secrets and confidential information, but also its goodwill. Goodwill is often associated with the people who work for the company, and customers associate certain names and faces with a particular company. The purpose of non-compete agreements is to allow employers to invest in highly-trained employees and to have them work directly with the community and customers, serving as the face of the employer. Employers invest significant time, money and resources in doing so. Employers should be entitled to protect these investments by not allowing the employees who are associated with a company’s goodwill to leave and immediately work for a direct competitor.
  1. There will be a disincentive for companies to re-locate to Utah because many currently come to the state due to its favorable non-compete laws.
     
  2. This is a dramatic change to Utah state law, as non-compete agreements have been enforceable in the State of Utah for at least 60 years. See Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951). H.B. 251 will be a sea-change to Utah law. Moreover, it will cause a great deal of confusion and burden for employers. For example, will they be required to update all current employment agreements if the law goes into effect? Certainly, a majority of Utah employers use some form of non-compete agreements in connection with their employees, and this law would significantly impact those employers.

For more information, please contact your Michael Best attorney; Lisa R. Petersen at lrpetersen@michaelbest.com or 801.833.0483; or Judson D. Stelter at jdstelter@michaelbest.com or 385.695.6454.

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