Utah Employers’ Ability to Use Non-Competes May Be Substantially Limited

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Stoel Rives - World of Employment

The Utah State Legislature is currently considering legislation that would significantly limit the use of non-compete agreements in Utah.  Senate Bill 46 (SB 46) has passed the Senate and received a favorable recommendation from the Utah House Business and Labor Interim Committee.  The bill adds to restrictions the Utah State Legislature enacted in 2016, which limited post-employment enforcement of non-compete agreements to one year.  Under the proposed bill, the Legislature would also restrict the reasons for which an  employer can seek a non-compete agreement.

Under current law, non-compete agreements in Utah must be no longer than one year, limited to a reasonable geographic area, and intended to protect only legitimate business interests of the employer.  Under common law, legitimate business interests supporting enforcement of a non-compete agreement have included a range of sensitive business information, like trade secrets, intellectual property, business plans, financial information, customer lists, and referral sources.  Courts have also found things like good will, customer relationships, and investment in employee training to be legitimate business interests supporting enforcement of a valid non-compete agreement.  The legislative history of SB 46 shows the Legislature’s intent to substantially limit an employer’s ability to protect many of these recognized legitimate business interests.

As initially introduced, SB 46 appeared to be an attempt merely to codify the common law recognition of legitimate business interests recognized by the Utah courts.  While some observers expressed concern about limiting the list of legitimate business interest to only those currently recognized, greater limitations soon followed.  The Utah State Senate amended SB 46 to remove most of the classes of intangible property currently protectible by non-compete agreements, leaving only trade secrets and intellectual property as the legitimate business interests allowed to support enforcement of a non-compete agreement.  Trade secrets and intellectual property already receive substantial protection under state and federal law.  Utah employers seeking to protect other types of information or their investment in good will, customer relationships, or employee training may find themselves with few tools if SB 46 is enacted.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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