Utah Noncompete Reform and What it Means

Utah - Wikimedia Commons

Wikimedia Commons

On March 22, 2016, Utah passed the Post-Employment Restrictions Act.

Under the Act, all new noncompete agreements executed on or after May 10, 2016, are restricted to one year; any agreement that violates this limit is void. Section 34-51-201.

The Act does not operate retroactively (section 34-51-201), nor does it apply to nonsolicitation agreements or nondisclosure agreements (section 34-51-102 (1)(a)). It also excepts from its purview “reasonable severance agreement[s] mutually and freely agreed upon in good faith at or after the time of termination that includes a [noncompete]” (section 34-51-202(1)) and noncompetes “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” (section 34-51-202(2)).

The Act also provides that the employer is liable for the employee’s attorneys’ fees, costs, and damages if “it is determined that the post-employment restrictive covenant is unenforceable . . . .” Section 34-51-301.

There will be quite a few things to sort out, not the least of which is what does it mean to be “determined that the post-employment restrictive covenant is unenforceable”? For example, what if the agreement is reformed and then enforced? Similarly, what is a “reasonable severance agreement”? And what amount and type of “value” will suffice in a sale of business? How judges handle these and other questions will be interesting to watch.

Time will tell.

The full text is here:

CHAPTER 51. POST-EMPLOYMENT RESTRICTIONS ACT

Part 1. General Provisions

34-51-101. Title.

This chapter is known as the “Post-Employment Restrictions Act.”

Section 2. Section 34-51-102 is enacted to read:

34-51-102. Definition.

As used in this chapter:

(1) (a) “Post-employment restrictive covenant,” also known as a “covenant not to compete” or “noncompete agreement,” means an agreement, written or oral, between an employer and employee under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes, or services that are similar to the employer’s products, processes, or services.

(b) “Post-employment restrictive covenant” does not include nonsolicitation agreements or nondisclosure or confidentiality agreements.

(2) “Sale of a business” means a transfer of the ownership by sale, acquisition, merger, or other method of the tangible or intangible assets of a business entity, or a division or segment of the business entity.

Section 3. Section 34-51-201 is enacted to read:

Part 2. Scope of Post-Employment Restrictions

34-51-201. Post-employment restrictive covenants.

     In addition to any requirements imposed under common law, for a post-employment restrictive covenant entered into on or after May 10, 2016, an employer and an employee may not enter into a post-employment restrictive covenant for a period of more than one year from the day on which the employee is no longer employed by the employer. A post-employment restrictive covenant that violates this section is void.

Section 4. Section 34-51-202 is enacted to read:

34-51-202. Exceptions.

(1) This chapter 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. A severance agreement remains subject to any requirements imposed under common law.

(2) This chapter 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.

Section 5. Section 34-51-301 is enacted to read:

Part 3. Remedies

34-51-301. Award of arbitration costs, attorney fees and court costs, and damages.

     If an employer seeks to enforce a post-employment restrictive covenant through arbitration or by filing a civil action and it is determined that the post-employment restrictive covenant is unenforceable, the employer is liable for the employee’s:

(1) costs associated with arbitration;

(2) attorney fees and court costs; and

(3) actual damages.

 

 

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