On March 22, 2016, Utah Governor Gary Herbert signed into law the Post-Employment Restrictions Act (H.B. 251), which limits the duration of post-employment noncompete agreements between employers and employees to a maximum of one year from the employee’s date of separation. Under the new law, any such agreement containing a noncompete restriction exceeding the Act’s one-year limitation will be deemed void. The law will take effect on May 10, 2016, and apply to all agreements entered into on or after that date.
The new law affects only post-employment noncompete agreements, which are defined as “agreement[s], written or oral, between an employer and employee under which the employee agrees that [he or she], either alone or as an employee of another person, will not compete with the employer in providing products, processes, or services that are similar to the employer’s products, processes, or services.”
Nonsolicitation agreements and nondisclosure or confidentiality agreements are not affected by the new law and are specifically excluded from coverage under the Act’s provisions. In addition, the law contains exceptions for (1) reasonable severance agreements that include post-employment restrictive covenants that are freely agreed upon in good faith; and (2) post-employment restrictive covenants related to or arising out of the sale of a business where the person subject to the restrictive covenants receives value related to the sale.
Furthermore, if an employer seeks to enforce a post-employment noncompete agreement—whether through arbitration or by the filing a civil action—and the noncompete agreement is found to be unenforceable, the new law makes the employer liable for the employee’s costs associated with arbitration, attorneys’ fees and court costs, and actual damages.
H.B. 251 is an important change to existing Utah law. If you have employees in Utah and require them to sign agreements with post-employment restrictions, you may want to review those agreements to ensure that the restrictions comply with H.B. 251 before the new law goes into effect on May 10, 2016.
