April 2016

 

I went to school in Utah and manage to ski up there every so often.  That’s a picture of my son and I in December.  Recently I ran accross an article  breaking down changes to Utah’s and Idaho’s non-compete laws.  The Utah statute really grabbed my attention.  The highlights: (1) non-competes can only last for a year after employment ends; (2) if the non-compete is determined to be unenforceable, the employer pays fees and costs (including arbitation fees); and (3) there is no attorneys’ fees provision if the agreement is a non-solicitation provision.

Interesting.  This really puts the onus on the employer to make sure it is using enforceable non-compete agreements and to really consider whether it wants to sue to enforce the agreement.  Those really are two separate issues.  A good lawyer can assist with preparing a non-compete that satisfies the common law or non-compete statute.

Now deciding to enforce the ageement is another issue.  Companies that don’t enforce their non-compete agreements send a clear message to their employees – they can go elsewhere and don’t have to worry about being sued.  Of course there are other things to consider such as whether the departing employee has caused any damage and the cost of litigation.  All of these are things to consider in making the decision on whether to file a lawsuit.  In Utah, companies will have to consider paying the former employee’s fees if it is determined the non-compete is unenforceable.  That issue is usually not resolved until well down the line.  As we have discussed here time and again most non-compete cases are resolved at the temporary restraining order or temporary injucntion level.  In Texas, a court is unlikley to resolve whether an agreement is enforceable at this stage.  Regardless, there still is the threat of paying fees.

What the Utah legislature really seems to be saying is for companies to focus on using non-solicitation agreements not non-competes.  This is not a novel approach.  We’ve discussed the same concept here before.  Judges prefer non-solicits to non-competes because they’re not putting anyone out of work.  The Utah legislature has incentivized employers to adopt this approach through the use of the fee provision.  I doubt the new statute deters employers from making employees sign these type of agreements.  (An employee could sue to declare the non-compete unenforceable but that does not happen that often.) That said, I think employers will think twice about attempting to enforce a non-compete.  Maybe they make the employee sign a non-compete, non-solicit, and non-disclosure.  If the employee departs and violates the agreement the employer sues to enforce everything but the non-compete.  We’ll see how things turn out in Utah and if other states follows. This is a progressive middle ground approach to non-compete legislation.