Understanding Utah Noncompete Agreements and other Restrictive Covenants

In Utah, noncompete agreements are ubiquitous. Employers use these agreements in virtually every situation for almost every type of employee. While enforceable if appropriately tailored and directed to employees who perform specific tasks and have access to specific types of information, noncompete agreements and other types of restrictive covenants are disfavored under Utah law unless they meet specific requirements.

Whether you're an employer looking to safeguard your business or an employee wondering about your rights, understanding the nuances of noncompete agreements and other restrictive covenants is essential. 

A noncompete agreement is a contract between an employer and an employee that restricts the employee from competing during and after the employment relationship ends. If drafted appropriately, these agreements are designed to protect trade secrets, customer relationships, and other proprietary business interests. However, noncompete provisions can drastically limit an employee's ability to change employers and work in their chosen profession. Other restrictive covenants can provide further limitations. Non-disclosure provisions can prevent an employee from disclosing her employer’s (allegedly) confidential and proprietary information. Non-solicitation provisions can prevent an employee from communicating with former coworkers and clients. All of these restrictive covenants can be enforceable in Utah if they are written properly, limited in scope and duration and designed to protect an employer's legitimate business interests.

Restrictive covenants in contracts are not the only way an employer can exert control over an employee. There are several “common law” and even statutory restrictions that employers and employees need to be aware of before evaluating any action. Many of our clients are surprised when they learn employees may be prohibited from using or disclosing an employer’s “trade secrets” even if they never signed a non-disclosure agreement. (A “trade secret” is a formal, pattern, compilation, program, device, method, technique, or process that an employer takes reasonable means to keep secret and derives independent economic value from being kept secret.) Under the concept of “tortious interference,” an employer can limit certain activities and statements you make to third parties. The Utah Supreme Court has even held that in certain circumstances, an employee owes her employer a fiduciary duty of loyalty to act in the employer’s best interests.

Utah law places limitations on noncompete agreements to ensure they are fair and reasonable. Here are some key points to consider:

  • Time Restrictions: Noncompete agreements entered into on or after May 10, 2016 cannot exceed one year from the employee’s termination date. This is because the legislature enacted the Utah Post Employment Restrictions Act which generally limits such agreements to no longer than one year. This limitation does not apply to noncompete provisions set forth in a negotiated severance agreement. It also does not apply to nondisclosure agreements, non-solicitation agreements or confidentiality agreements. 

  • Reasonableness Standard: Courts in Utah enforce noncompete agreements only if they are narrowly tailored to protect legitimate business interests, such as trade secrets or goodwill, and reasonable in scope (and duration - see above).

  • Industry-Specific Rules: Certain industries, such as broadcasting, have additional restrictions on noncompete agreements.

  • Common Callings: Employees engaged in a common calling generally do not provide services of a special, unique or extraordinary nature sufficient to allow and employer to preclude an employee from working for a competitor by means of a noncompete agreement.

The Utah Supreme Court has also held that that once an employee's employment ends, he has the “prerogative” to use his general knowledge, experience, memory and skill, however gained, provided he does not use or disclose his prior employer’s trade secrets and confidential information. Decades ago, in Robbins v. Finlay, the Utah Supreme Court held that the “efficiency and skills which an employee develops through his work belong to him and not to his former employer.” The Utah Court of Appeals has held that an employer’s confidential information loses any protection to which it may have been entitled after it has been merged into the employee’s own faculties, skill and experience.

For employers, it’s crucial to draft noncompete agreements carefully to ensure they comply with Utah law and are enforceable. Overly broad restrictions may be struck down by courts. Hence, make sure to appropriately limit and craft any agreement before asking employees to sign, and tailor the agreement to the services that employee provides and the information he has access to. For employees, understanding your rights is key. If you’re asked to sign a noncompete agreement, consider consulting a legal professional to ensure it doesn’t unfairly limit your future employment opportunities, or to negotiate needed changes.

If you need assistance with a noncompete or other restrictive covenant, feel free to call Stavros Law at (801) 758-7604 or email us at scheduling@stavroslaw.com.


Location: Utah, USA

Comments

Post a Comment

Popular posts from this blog

FTC Extends Comment Period for Rule Banning Non-compete Agreements for Employees and Independent Contractors

The Federal Trade Commission (FTC) announced that it will extend the comment period through April 19, 2023 for its proposed rule banning non-compete agreements for employees and independent contractors. (See FTC Announcement ). On January 5, 2023 the FTC issues a proposed rule that prohibits employers from using non-compete clauses with employees and independent contractors. If adopted, the FTC rule would require employers to rescind any such clauses contained in agreements with their employees and independent contractors, and provide notice that such clauses are no longer in effect. It would also prohibit such clauses moving forward. The proposed rule can be accessed here (See FTC Proposed Rule ). The rule is expressly limited to restrictive covenants that prohibit employee mobility - accepting jobs with competitors. But the proposed rule would also reach non-solicitation and non-disclosure provisions to the extent such provisions are functionally equivalent to a non-compete clause. I...
Read more

Federal Court Holds Job Applicants Cannot Assert Disparate Impact Claims under the Age Discrimination in Employment Act of 1986 (ADEA)

An en banc panel of the Seventh Circuit Court of Appeals held that that Age Discrimination in Employment Act (ADEA) does not cover disparate impact claims asserted by job applicants. You can read the opinion here: Kleber v. CareFusion Corp. The facts in Kleber are straightforward. Kleber, an attorney, applied for a senior in house position with CareFusion in response to a job posting that required applicants to have "3 to 7 years" of relevant legal experience (but no more).  He was 58 when he applied and the job was ultimately given to a 29 year old applicant. Kleber filed a lawsuit under the ADEA asserting both disparate treatment claims and disparate impact claims under Sections 4(a)(1) and 4(a)(2) of the ADEA. The disparate impact claim was based upon the premise that the impact of the job limitation on experience was to exclude applications who were older, even if that decision was not the result of discriminatory bias or intent.   Section 4(a)(2) of the ADEA makes it...
Read more

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...
Read more