Utah's newly enacted Post-Employment Restrictions Act (Act) takes effect tomorrow and significantly limits the duration of newly entered noncompetition agreements. Employers should review their noncompetition agreements going forward to make sure they comply with this new law.

Under the Act, noncompetition agreements entered on or after May 10, 2016, may not last more than one year from the date the employer no longer employs the employee. The Act specifically declares that noncompetition agreements that restrict competition for more than one year are void. Employers who use or seek to enforce noncompliant agreements, either through arbitration or court, may be liable to their former employees for damages and attorneys' fees.

This Act marks a significant change from the prior approach followed by Utah courts, under which an employer could require (and enforce) an agreement restricting competition for more than one year following the termination of employment, provided such a duration was reasonable in light of the employer's legitimate business interests. Some courts would reduce the duration of the covenant to an amount of time deemed reasonable under the circumstances, if they concluded the restriction was too long. However, the Act's declaration that agreements lasting longer than one year are void now forecloses that option.

There are several notable exceptions to the Act. It does not restrict the duration of noncompetition agreements entered into as part of the sale of a business. Nor does it restrict the duration of noncompetition agreements that are part of a reasonable severance agreement, if the severance agreement is negotiated upon or after termination of employment. The Act expressly does not apply to nondisclosure and nonsolicitation agreements. And, it does not apply to agreements executed before May 10, 2016. Finally, the Act does not alter the existing common law requirements that noncompetition agreements must be: supported by consideration; negotiated in good faith; necessary to protect legitimate business interests; and reasonably limited in geographic scope.

The Act is new and we have yet to see how it will play out in Utah courts. However, employers should take this opportunity to review their employment agreements containing restrictive covenants to ensure that all agreements entered on or after May 10, 2016, comply with the Act.

Ballard Spahr's Labor & Employment Group has significant experience assisting employers in drafting compliant noncompetition, nonsolicitation, and nondisclosure agreements, as well as representing employers in litigation relating to those agreements. If you would like to discuss the Post-Employment Restrictions Act or revise your agreements, please contact the authors of this alert or any other member of the Labor & Employment Group.


Copyright © 2016 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


Related Practice