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How One State Nails Employers Who Go Too Far on Non-Competes


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3/30/2016
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Just last week, on March 22, 2016, the Governor of Utah signed into law H.B. 251, the Post-Employment Restrictions Act. 

When you look at some of the provisions of the new law, it is certainly not surprising that this bill entailed quite a fight.

How Utah's Statute Penalizes Employers That Are Overly Aggressive in Litigating Non-Competes

Here are two (2) of the highlights of the new bill:

  • Any post-employment non-compete agreement entered into on or after May 10, 2016, is inherently void if it purports to extend for a period of more than one year following the termination of employment; and,
  • If an employer tries to enforce an unenforceable post-employment non-compete agreement, the employee can recover his/her costs, actual damages AND attorney's fees.

The Silver Lining for Employers

The news about this statute is not all bad for employers, though. 

There is an important caveat here (which, to be sure, was a necessary accomodation to businesses in order for this bill to have had a prayer of being passed, and enacted into law):

  • This provision specifically does NOT apply to post-employment non-solicitation provisions, nor does it apply to non-disclosure agreements that pertain to the former employer's confidential information.

The Problems Solved - and Created by - the Statute

You can almost hear the employee groups cheering this new law - and I live on the far reaches of the East Coast. The law certainly creates a strong disincentive for employers to pursue former employees who have opted to take on a new job working for a competitor.

And in most cases, that's probably a good thing. After all, how many employees are really key, or "unique" employees whose departure to a competitor could threaten the very viability of your business? (For more on this topic, see "The Biggest Hurdle to Enforcing a Non-Compete Agreement in New York").

In addition, it the legislature acted wisely by carving out, and distinguishing non-solicitation and non-disclosure agreements from non-compete agreements, because there is little doubt that, generally speaking, employers have a legitimate, vested interest in protecting their client and employee bases, as well as their confidential information from being used and/or pirated by a former employee to gain an unfair advantage and compete.

Where the New Law Could Be Clearer

On the other hand, and unfortunately, it appears that the statute does leave open what happens when a former employer has a legitimate, good faith basis for seeking to hold a former employee to a non-compete, but then loses the argument at trial.

If the agreement did not violate the law per se (e.g., it was only for one year in duration), would the (former) employer still be potentially liable for the former employee's costs and attorney's fees?

In my view, the Utah legislature should have spelled that one out - and they didn't.

 

 



Category: Non-Compete & Employment Agreements

Jonathan Cooper
Non-Compete, Trade Secret and School Negligence Lawyer

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