SCM NEWS & OPINIONS

Comprehensive Study on Non-Compete Agreements Rejection of Utah HB81

In mid-February, the Utah legislature rejected House Bill 81 which proposed making post-employment restrictive covenants void when the employee received no additional consideration in exchange for signing the agreement. That consideration could be in the form of an increase in wages or a promotion in exchange for signing the non-compete agreement.

Last year, the Utah Legislature passed HB 251, a bill which statutorily limited new non-compete agreements in the state to one year following employee-employer separation. HB 251 also added provisions requiring employers to pay their former employee’s legal fees and damages, if the employer sought to enforce a void non-compete agreement in court or through arbitration.

Following the passage of HB 251, various groups sought to determine how non-compete agreements actually affect Utah businesses and their employees. As a result, the Salt Lake Chamber of Commerce, in conjunction with the Labor and Employment Section of the Utah State Bar, industry associations, the Utah Legislature and other chambers across the state worked together to understand the perspectives on the subject from employers and employees across the state.

Conclusions of the Study on Non-Compete Agreements in Utah

Just days after the rejection of HB 81, a comprehensive, data-driven study on the effects of non-compete agreements in Utah was released. The study includes data from more than 2,000 Utah employees, and nearly 1,000 Utah employers. Conclusions of the study include the following:

  • Of those employees surveyed, about 60 percent have a non-compete agreement with their current employer;
  • About 49 percent of the Utah employers surveyed said they ask at least some of their employees to sign a non-compete agreement;
  • About 35 percent of the Utah employees surveyed have been asked to sign a non-compete agreement at some point in their career;
  • Of those surveyed, the industry with the most non-compete agreements is management, followed closely by information and technology, then administrative support;
  • Some employers ask all employees to sign a non-compete agreement, with the largest concentration of the agreements among employees in sales, executive, and professional roles;
  • Companies with more employees are more likely to ask at least some of their employees to sign a non-compete agreement;
  • Higher income employees are more likely to sign a non-compete agreement, with about 40 percent of non-compete agreements being signed by those making more than $150,000.
  • Of the employers surveyed, it was estimated that about 11 percent of employees typically violate their non-compete agreement;
  • While a significant portion of employees surveyed believed a non-compete agreement prevented them from working at a competing company after leaving their current employment, a majority of the employers surveyed believed a non-compete agreement protected their confidential information in the event an employee goes to work for a competitor;
  • About 90 percent of the employers surveyed, and 74 percent of the employees surveyed, agreed that non-compete agreements should be allowed so long as the agreement is reasonable and has a legitimate purpose;
  • About 29 percent of surveyed employers and 46 percent of surveyed employees agreed that a non-compete agreement term should last one year or less;
  • About 5 percent of surveyed employees said they would not work for an employer if asked to sign a non-compete agreement;
  • Both employers and employees surveyed felt the courts usually rule in favor of the other party;
  • About 26 percent of surveyed employees who currently have a non-compete agreement said they thought the agreement was “slightly unfair” to “not at all fair”;
  • About 51 percent of the employers surveyed said they remind their employees of the non-compete agreement at the time of the employees’ departure;
  • As far as HB 251 goes, the majority of the employees and employers surveyed were unaware the bill was passed in 2016;
  • A significant portion of employers surveyed (69 percent) believe HB 251 will have a negative impact on their ability to protect proprietary ideas, processes, or inventions, and
  • Most of the respondents claimed they had not made or noticed any changes in their employment practices following the passage of HB 251.

This survey provides some timely information which will likely be a topic of conversation in legislative sessions to come, and suggests Utah employers and employees do not entirely understand the legal effect of non-compete agreements.  If you have any questions relating to non-compete agreements, we recommend consulting a Utah attorney experienced in the area.

Contact any one of our SCM attorneys with experience dealing with non-compete agreements: Keith A. Call, Maralyn M. English, or Robert T. Denny.