Non-Competition Agreements
There are a lot of misconceptions about non-competition agreements. You might have heard that they are impossible to enforce, or even that they are unenforceable altogether. This conventional wisdom is only partially correct. Non-competition agreements are governed by Utah statute. Utah Code §34-51-101 et. seq. The pertinent part of the statute includes the following:
34-51-201 Post-employment restrictive covenants.
In addition to any requirements imposed under common law, for a post-employment restrictive covenant entered into on or after May 10, 2016, an employer and an employee may not enter into a post-employment restrictive covenant for a period of more than one year from the day on which the employee is no longer employed by the employer. A post-employment restrictive covenant that violates this section is void.
34-51-202 Exceptions.
(1) This chapter does not prohibit a reasonable severance agreement mutually and freely agreed upon in good faith at or after the time of termination that includes a post-employment restrictive covenant. A severance agreement remains subject to any requirements imposed under common law.
(2) This chapter does not prohibit a post-employment restrictive covenant related to or arising out of the sale of a business, if the individual subject to the restrictive covenant receives value related to the sale of the business.
The key provision in non-compete agreements is that the restrictive period must be limited to one year. Post-termination restrictive covenants that exceed one year have to be specifically negotiated in a severance package under Utah Code § 34-51-202(1), or as the negotiated term in the sale of a business under Utah Code § 34-51-202(2).
Any non-competition provision must be reasonably limited to a specific geographic region, be executed for the purpose of securing the goodwill of a business, and be limited to a particular industry. There are a number of public policy rationale which underline the broad limitations on non-competition agreements. For example, these laws promote fluidity in the labor market, and allow employees to negotiate for better pay, terms and conditions with different employers. On the flip side, non-competition covenants protect a company’s investment in its work force. The mentoring, training and education involved in hiring new employees is costly. Companies should be able to protect this investment by negotiating reasonable restrictions on competition.
Contact Howard, Lewis & Petersen, P.C. today to answer all your questions about non-competition agreements in the State of Utah.
