Challenges of Enforcing Non-Compete Agreements in Utah
In Utah, the Post Employment Restriction Act (the “Act”) applies to both written and oral post-employment non-compete agreements that are entered into between employers and employees after May 10, 2016. This law expressly prohibits employers and employees from entering into non-competes for longer than one-year from employee’s termination date. Non-competes that extend beyond this time period are considered void under the Act. In addition to time limitations, Utah law imposes important requirements and restrictions on non-compete agreements. Employers who want to impose non-competes on employees must pay special attention to these legal requirements to ensure enforceability. Similarly, employees looking to get out from under a non-compete may be able to do so by careful evaluation of facts and law underlying their specific non-compete agreement. This post discusses general guidelines and requirements for employment related non-competes in Utah.
In addition to the one-year time limitation, to be enforceable under Utah law, a non-compete agreement must meet the following requirements:
1. Supported by legal consideration. The offer of employment is ample consideration, and in an at-will employment relationship, the promise of continued employment may be sufficient consideration.
2. Negotiated in good faith.
3. Necessary to protect the goodwill of the business.
4. Reasonable in geographic area/scope. The more local the interest being protected, the more narrowly drawn the geographic limitation must be.
5. The employment relationship must also be deemed special, unique and extraordinary.
Utah courts will only enforce non-compete agreements if narrowly tailored to meet the legitimate interests of an employer. Legitimate interests include those to protect trade secrets, the goodwill of the business, or an extraordinary investment in the education or training of an employee.
What complicates the matter further is Utah courts have not specifically adopted a blue-pencil approach to revising otherwise non-enforceable non-compete agreements. For those unfamiliar with the term “blue pencil,” it’s a term that generally refers to a practice of modifying, narrowing, or deleting unenforceable provisions in a contract so that the remainder of the agreement is enforceable. So, if you draft a non-compete agreement that violates Utah law, it remains unclear whether a court would revise the agreement to comply with law, or simply void it altogether.
Importantly, employment agreements entered into prior to May 10, 2016 are not subject to the Act, and are analyzed by a more general “reasonableness” standard by Utah courts. Reasonableness depends on the facts in each of these cases, and courts will evaluate the nature of the employer’s interest in what the non-compete is intended to protect. In any case, Utah courts have stated that the non-compete “should not last longer than necessary for the employer to consolidate its goodwill in order to withstand any competition from the employee.” In evaluating these cases, Utah courts have held up to five-years as reasonable when supported by the facts.
As an employee, it’s important to understand the risk of violating a valid non-compete under Utah law, and as an employer, it’s important to understand your rights against an ex-employee. If an ex-employee is found to have violated a valid non-compete agreement, Utah courts may award the employer an injunction (halting the employee’s behavior resulting in breach of the non-compete) and/or award the employer lost profits. In addition, Utah courts may award attorneys’ fees and liquidated damages, both only if provided for in the agreement.
Analyzing the enforceability of a non-compete agreement in Utah is not necessarily cut and dry, and often hinges upon a factual determination of a finding of reasonableness and duration. If you need assistance drafting a non-compete agreement or are an employee who needs assistance reviewing one provided to you, please reach out to Christina Saunders at Christina@saunders-saunders.com to set up a meeting today.