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New Utah Statute Limits Non-Compete Agreements

New Statute: 

A new Utah statute, U.C.A. § 34-51-201, strictly limits the enforceable period of a non-compete covenant to one year and voids any post-employment restrictive covenant that violates the statute.  The statute, which became effective May 10, 2016, also contains an attorney’s fees and damages provision that potentially affects all employers that have non-competition agreements, including possibly agreements signed even before May 10, 2016.  This makes it imperative not only to address the enforceable period, but also to closely tailor non-compete, non-solicitation, and confidentiality agreements to more precisely describe exactly what goodwill or confidential information the employer is trying to protect.   The new statute limits the period of a non-compete agreement, but does not alter common law restrictions on geographic scope.  Exceptions in the statute pertain to termination agreements and business sales.

While the statute only specifically applies to agreements entered into on or after May 10, 2016, some lawyers believe that U.C.A. § 34-51-201 implies that the one-year limit is now the public policy of Utah and might possibly limit all non-compete agreements in Utah to one year.

What Employers Must Do:

All employers should now review their existing non-compete covenants, and as they enter into new agreements, employers must consider the following:

  1. New non-compete covenants signed on or after May 10, 2016, must be limited to a  one year term of enforceability after the employee’s termination/separation from employment. Signing a non-compete agreement today with a two year term will be unenforceable.
  1. Consider whether existing non-compete agreement forms must be revised for all new agreements because they might violate the new statute.
  1. Review current agreements to determine if they contain reciprocal attorney fees provisions in light of § 34-51-201 because under the new statute, the employee may claim fees and damages if the covenant is deemed unenforceable.

Conclusion:

Utah law concerning non-compete agreements has substantially changed.  Employers that have, or intend to prepare non-compete agreements or other post-employment restrictions on certain employees, should review those agreements and provisions now to ensure they will be enforceable under Utah’s new statute.   Please call Kruse Landa Maycock and Ricks at 801 531-7090 with any questions and to seek assistance with new or existing non-compete agreements.