Utah employers should update their form noncompete agreements to ensure they comply with the state’s new Post-Employment Restrictions Act. Employers of all sizes are subject to the Act, which was adopted by the Utah legislature on March 9, 2016, and applies to all post-employment restrictive covenant agreements entered into on or after May 10, 2016. The Act specifically:
- prohibits employee noncompete agreements from exceeding one year after employment termination; and
- requires an employer seeking to enforce a noncompete agreement to pay all employee litigation costs for unenforceable agreements.
We have learned that Governor Herbert signed the bill into law on March 22, 2016.
The Act’s one-year post-termination limitation does not apply to reasonable severance agreements signed at or after the time of an employee’s termination. Nor does it apply to noncompete agreements arising out of the sale of a business if the individual subject to the noncompete receives value from the sale. Additionally, nothing in the Act prohibits employers and employees from entering into nonsolicitation or nondisclosure agreements with employees.
For a noncompete agreement made on or after May 10, 2016, to be enforceable under the Act, in addition to the one-year post-termination duration limit, it must still satisfy the following common law requirements previously established by Utah courts:
- be supported by consideration;
- be negotiated in good faith;
- be necessary to protect the good will of the business;
- be reasonable in the geographic area it covers.
The enforceability of noncompete agreements made before May 10, 2016, will continue to be determined according to applicable Utah common law.
Employers should review their existing noncompete agreements to determine what changes need to be made before using them for new employees after May 10, 2016. This presents an ideal opportunity to ensure the geographic scope is in accord with the actual scope of the business; the business is accurately described, including new technologies developed since the agreement was first drafted; and the enforcement language complies with the new restrictions.
When enforcing noncompete agreements in the future, employers should be sure to take into account the Act’s litigation expense-shifting provision and ensure they are confident in their enforceability.
If you would like additional information or have any questions, please contact us.
Research Clerk Jon Williams provided significant assistance in the creation of this article.