Utah Supreme Court Holds That Worker's Compensation Attorney Fee Schedule Is Unconstitutional

In a decision that will certainly provide injured workers with a boost and allow more attorneys to represent injured workers, the Utah Supreme Court held that the Labor Commission's regulation of the amount of fees that can be paid to attorneys representing injured workers is unconstitutional under  the Utah Constitution's separation of powers clause.  You can access the decision here.

In a decision written by Justice Durham, the Utah Supreme Court held that Utah Code section 34A-1-309 and the Labor Commission's interpretive regulations violation Article VIII, Section 4 and Article V, Section 1, of the Utah Constitution because the Utah Supreme Court has the exclusive power to regulate the practice of law. The Court found that regulating the amount of attorneys' fees paid to an attorney goes to the very heart of the practice of law and regulating the practice of law in the State of Utah rests with the judicial branch, not the legislative branch

For employees who have suffered an injury at work, this decision will level the playing field and allow injured workers to find legal counsel who can represent employees in even the most difficult and time consuming cases. Attorneys will no longer be limited be limited by statute with regard to the amount of fees charged, but instead, will be regulated by rules of professional conduct, as in all other cases.

If you have been injured at work, or have questions about Utah's workers' compensation system, please contact one of our Utah workers' compensation attorneys, or contact us online at utahtriallawyers.net for more information.

At Stavros Law, we provide direction and deliver results for clients in Utah, the Mountain West and across the United States.

New Utah Non-Compete Bill Effective as of May 10, 2016

In a move that was surprising to many, the Utah legislature passed, and the Governor signed, H.B. 251, the "Post-Employment Restrictions Act" in March of 2016. You can review the new law here, which sets a one year-limit on employment non-compete agreements starting May 10, 2016.

While the Act that ended up being passed was altered significantly from the original bill that was introduced, the Act prohibits employee non-compete agreements from being longer than one year following termination, and, significantly, requires a non-prevailing employer who seeks to enforce an agreement in violation of the Act to pay attorneys' fees and costs to an employee who successfully challenges the enforceability of the post-employment non-compete agreement.

What Non-Compete Agreements are Subject to the Act?

Utah Code Section 34-51-201 provides that "in addition to the requirements under the common law, for a post-employment restrictive covenant entered into on or after May 10, 2016, an employer and 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." 


The Act defines a "post-employment restrictive covenant" as a "covenant not to compete or non-compete agreement between an employee and employer where 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." U.C.A. 34-51-101(1)(a).  Importantly, non-solicitation agreements and nondisclosure and confidentiality agreements are not "post-employment restrictive covenants under the Act." In addition, the Act expressly does not apply to severance agreements signed upon or after termination, and the Act does not apply to restrictive covenants included with the sale of a business so long as the individual(s) subject to the restrictive covenant receives value from the sale (e.g., an employee of the business being sold receives compensation as part of the transaction in order to be precluded from competing).

The Act does not apply to independent contractors, only employer/employee relationships. Hence, independent contractors (or those who are improperly classified as independent contractors) must still show that a non-compete is unenforceable under the common law of Utah, and in many situations a non-compete agreement may extend beyond one year if an employer can establish that the agreement is narrowly tailored to protect its legitimate business interests. Employers are also free to use non-compete, non-circumvention and non-disclosure agreements to restrict certain actions by departing employees, without regard to the one year limitation in the Act. In many ways, these types of agreement are much more efficient and effective in preventing employees from damaging an employer's business post-termination than non-compete agreements.

Employers who ask employees to sign non-compete agreements starting on May 10, 2016 and moving forward should still tailor a non-compete agreement to comply with Utah's common law requirements, but should limit the duration of the non-compete agreement to one year. Under Utah common law, for a non-compete agreement or other restrictive covenant to be enforceable it must be supported by consideration, negotiated in good faith, necessary to protect the employer's legitimate business interests (i.e., goodwill, trade secrets) and reasonable in duration and scope (although the duration now must be no longer than a year for non-compete provisions).


What Happens if an Employer Violates the Act?

An employer can no longer force an employee to sign an overly broad non-compete agreement and avoid economic harm for doing so.  Under the Act, if an employer seeks to enforce a post-employment restrictive covenant, either by filing a civil action or commencing an arbitration, and the court (or arbitrator) determines that the covenant is unenforceable, the employer is liable and must pay the employee's costs, attorneys' fees and actual damages.  U.C.A. 34-51-301. This means that employers should take significant care to craft agreements that are tailored to the specific duties of an employee, and not bind employees engaged in a common calling to non-compete agreements that are overly broad. Employees are much more likely to contest overly broad agreements given the new provisions in the Act, and employers who ask an employee to sign a non-compete longer than one year in duration do so at their own peril.

What Should Employees Do?

The Act is a major victory for employees, but employees always must be vigilant about protecting their interests before signing a non-compete or other restrictive covenant.  In most circumstances, employees who are presented with an agreement that includes a non-compete or other restrictive covenant when they start working should have an experienced Utah non-compete lawyer review the agreement before signing.  While the Act limits the duration of non-competes to one year, and provides for the award of attorneys' fees and costs if an employee prevails, non-compete agreements are still enforceable and can significantly limit employees ability to earn a living following termination. Moreover, employers may still have employees sign restrictive non-solicitation provisions that fall outside of the Act's protections.

Many issues that should have been addressed in the Act were not addressed but may come up in future legislation. For example, Utah law still provides that an employee's continued employment is significant consideration to support a non-compete. Also, whether or not you are terminated, quit, or resign for good cause, Utah law still allows a post-employment restrictive covenant to be enforced. It's not enough that your employer thought you were a terrible employee or incompetent or simply didn't need your services anymore, or that you had a justification for leaving. In each of those situations, under settled Utah law an employer may still enforce the restrictive covenant that you signed with limited exceptions.  Even worse, although the Supreme Court has not addressed this issue, Court's often "blue pencil" overly broad agreements, which means that a Court may still be able to modify an overly broad non-compete so that it is enforceable, even though the agreement your employer asked you to sign was unenforceable.

There are numerous other issues that both employers and employees need to consider under the Act and Utah common law. If you have questions about the Act, non-compete agreements or other forms of restrictive covenants, including non-disclosure, non-solicitation and non-circumvention agreements, please call our office at (801) 758-7604 and speak to one of our Utah attorneys experienced with non-compete issues and restrictive covenants, or contact us online at www.utahtriallawyers.net to get additional information.

At Stavros Law, our employment lawyers represent individuals and businesses on all aspects of Utah employment law, including non-compete agreements, non-solicitation agreements and other restrictive covenants.

Supreme Court Holds Employer's Mistaken Belief Concerning Protected Speech Enough to Support First Amendment Retaliation Claim

The U.S. Supreme Court issued a decision earlier this week confirming that an employee can bring a First Amendment Retaliation claim where he suffers an adverse action based upon the employer's mistaken belief that he engaged in protected speech. You can read the decision, Heffernan v. City of Patterson, here.

Heffernan involved a police officer who was demoted because of his employer's mistaken belief that he supported the mayor's rival in an election.  In a 6-2 decision, the U.S. Supreme Court reversed the lower court's decision holding that Heffernan's claim that his managers' mistaken belief he was supporting the mayor's rival and his demotion are sufficient basis to raise a First Amendment retaliation claim under Section 1983.

The decision was authored by Justice Breyer, with only Justice Alito and Justice Thomas dissenting. The opinion is unquestionably a huge victory for public employees because it focuses on the employer's motivation for taking the adverse action, not on whether or not the employee actually engaged in protected speech.

The First Amendment generally prohibits government actors from terminating or taking other adverse action against a public employee because the employee engaged in constitutionally protected political activity. Focusing on the Court's prior decision in Waters v. Churchill, 511 U.S. 661 (1994) where the Court held that as long as the employer reasonably believes the employer's speech had involved personal matters and not matters of public concern and dismissed an employee because of the employer's mistaken belief, the First Amendment was not implicated.  In other words, the appropriate focus was on the employer's belief and motivation for taking the action. Relying on the reasoning in Waters, the Court held:

"We conclude that, as in Waters, the government’s reason for demoting Heffernan is what counts here. When an employer demotes an employee out of a desire to prevent the employee from engaging in political activity that the First Amendment protects, the employee is entitled to challenge that unlawful action under the First Amendment and 42 U. S. C. §1983—even if, as here, the employer makes a factual mistake about the employee’s behavior."

In dissent, Justice Thomas said that the police officer could not assert a First Amendment claim because the threshold inquiry was always whether the employee has engaged in protected speech.  "A city’s policy, even if unconstitutional, cannot be the basis of a §1983 suit when that policy does not result in the infringement of the plaintiff ’s constitutional rights."  Thomas also argued that Heffernan's claim failed because he must establish that this policy infringed his constitutional rights to speak freely and peaceably assemble. "Even if the majority is correct that demoting Heffernan for a politically motivated reason was beyond the scope of the City’s power, the City never invaded Heffernan’s right to speak or assemble."

If you have questions about First Amendment rights as a public employee or other Constitutional rights that cannot be infringed by government actors that are enforceable under 42 U.S.C. §1983, please call our office at (801) 758-7604 or contact us online at www.utahtriallawyers.net for more information.

Utah Court of Appeals Affirms Jury Verdict on Trade Secret Misappropriation Claim

In CDC Restoration & Construction, LC v. Tradesman Contractors, LLC the Utah Court of Appeals affirmed a jury verdict of trade secret misappropriation and confirmed established Utah law that a trade secret misappropriation claim can be supported entirely by circumstantial evidence, even where there is no direct evidence that a party actually used the information.

The Court had considered CDC's claims in a prior decision, finding that its claims of breach of fiduciary duty were preempted by the Utah Uniform Trade Secret Act, and reversing the trial court's grant of summary judgment to Tradesman, in part, by allowing its claim under the UTSA to go to trial. The case went to trial, and CDC prevailed.

The CDC case is an example of the perils associated with trying to be secretive about starting a competing entity while working for an employer. While CDC's breach of fiduciary duty claims never went to trial, it appears that the jury relied heavily on the actions of CDC's former employee (Carsey) while he remained employed with CDC to ultimately infer that he had taken CDC's bid information and used it to underbid CDC on behalf of Tradesman after he left his employment with CDC. Indeed, the jury apparently found in favor of CDC largely on the perception of wrongdoing, as there was little, if any, actual evidence provided by CDC that Tradesman and its former employee actually took or utilized CDC's information.

The facts, as recited by the Court of Appeals, were as follows:

CDC, a concrete repair and coatings company, had a contract to perform concrete repair and restoration work for Kennecott. As part of that arrangement, CDC entered into an agreement to be Kennecott's preferred provider. The agreement was confidential, and included rates CDC charges for work, pricing information for hourly employees and charges for equipment. Paul Carsey worked for CDC as an employee, as part of his duties he regularly delivered sealed envelopes that contained confidential information. Carsey, however, never signed a confidentiality agreement with CDC.  He gave two weeks notice to Ralph Midgley, CDC’s co-owner, explaining that he was, "burned out" and "tired of" working at Kennecott. Carsey told Midgely of his plan to earn a living by buying, refurbishing, and selling houses instead. Carsey, however,  had already become a co-owner and director of a new competing company, Tradesmen, with Kenneth Allen.  

Mr. Allen was a subcontractor for Kennecott who acted as the project supervisor overseeing CDC’s work there. In this role, Allen received CDC’s invoices for its projects and verified that its rates conformed to those specified in CDC’s PPA. Consequently, Allen received and had access to CDC’s pricing information. 

In 2005, Kennecott opened a competitive bid process on a project. CDC and Tradesman bid on the the project.  Casey, still employed by CDC, developed CDC’s bid with Midgley and assessed the equipment needs and the amount of time and labor that would be required to complete the project.  Midgley believed both CDC’s PPA and its final bid were confidential, and he shared CDC’s labor and equipment estimates with only Carsey and Kennecott. Midgley kept the details of CDC’s bid in his locked office.  At the same time, Carsey and Allen were in frequent telephone contact when the two companies were formulating their bids. According to a partner at Tradesmen, Carsey gave Allen input on the numbers for Tradesmen’s bid the night before bids were due.

CDC, Tradesmen, and another company submitted bids for the Project. CDC’s bid was the highest at $179,729.32, Tradesmen’s was the second highest at $141,575.00, and a third company’s was the lowest. On January 23, 2006, Kennecott awarded the Project to Tradesmen. Dan Larsen, who had replaced Allen as the supervisor at Kennecott, informed Midgley that Tradesmen won the contract because it was the lowest competent bidder‛ owing to the fact that Carsey worked there. Until this point, Midgley did not know Carsey was involved with Tradesmen. 

At trial, CDC argued that Tradesmen inappropriately used Carsey’s knowledge of CDC’s estimates and Allen’s familiarity with CDC’s pricing information to formulate Tradesmen’s lower bid for the project. In contrast, Tradesmen argued it did not misappropriate the bid information because it had no access to CDC’s actual bid and because Carsey’s general knowledge about estimating labor and equipment needs for projects is not a trade secret.  The jury agreed with CDC and awarded it $161,974 from Allen, $171,974 from Carsey, and $982,455 from Tradesmen. 

The Court of appeals found that the bid information compiled by Carsey and Midgley was a trade secret under the UTSA. First, it found that such information was not generally known to the public and derived independent economic value. Second, it found that the information was subject to efforts to keep it secret.

The CDC case is a great reminder that employees and others who are planning to start a competing business need to do so with the advice of counsel. It is not enough that an employee has not signed a noncompete agreement.  Employees who utlize confidential or proprietary information, work on their own business while being paid by their employer or take other steps to violate the duty of loyalty owed to their employer are at significant risk of being sued when they leave and form or work for a competing entity.

For more information about Utah misappropriation claims, breach of fiduciary claims or non-compte claims, contact one of our Utah trial lawyers at (801) 758-7604, or contact us online at utahtrialawyers.net.