A Guide to Non-Compete Agreements in Utah for Employers and Employees

Non-Compete Agreements Defined

Non-compete agreements are common tools used in the employment world, particularly by business owners who want to prevent their employees from walking away with valuable contacts, intellectual property, and/or business know-how. These contracts often restrict a person’s ability to work in a particular industry or sell certain products after a job ends—limiting access to sales and contacts that could bolster a competitor instead of the former employer.
In Utah, like most other states, non-compete agreements must be reasonable in time and scope . Broadly worded restrictions prevent contracts from being "reasonable" and can be deemed unenforceable. It is important to carefully craft and enforce non-compete agreements in a way that both protects business interests while not unduly restricting the earning potential of employees, and thereby the economy. Non-compete agreements are also most likely to be enforceable when there is mutual consideration (e.g. job training, confidential information).

Utah Law Pertaining to Non-Compete Agreements

Utah’s laws regarding non-compete agreements are codified in the Utah Code under Title 34, Chapter 50 of the Utah Code Annotated (UCA). Utah is generally unfavorable to non-competes across the board, but they are still enforceable in certain specific situations. Utah’s statute explicitly states that employees cannot go to work for a competitor of their former employer and (1) solicit clients of the former employer, (2) client lists, or (3) trade secrets or confidential information. However this is only the case if such information was obtained in the course of employment with the former employer and if the new employer is a competitor.
The statute also states that employers within Utah are prohibited from including a non-compete agreement in an employment contract if the employee is required to use or obtain an occupational license, certificate, permit or registration that requires the employee to have a license, registration, or certificate in order to work – if the employer has any influence on the board issuing the license, registration, or certificate.
As previously mentioned, even though there have been several cases where the board has ruled in favor of enforcing a non-compete, Idaho Employers should not rely on a positive ruling from the Industrial Commission. The commission interprets the law almost exactly opposite from how courts interpret contracts.
In addition, in 2016 legislation was passed providing that if a restrictive covenant is triggered when a person is involuntarily terminated from employment, such termination is to be treated as voluntary and in most cases the restrictive covenant will still be valid.
For Utah, the main cases dealing with non-competes all come from the Utah Supreme and Circuit Courts. In one instance, the Utah Supreme Court refused to enforce a non-compete as it dealt with a one year prohibition on working in a construction business.
Typically, the court will uphold non-competes if they are time and geographically limited. One Utah case held that a restriction of two years for a sales representative was too long to be reasonable.

Common Restrictions and Limitations

While non-compete agreements, in general, are disfavored in Utah, the state does impose certain restrictions and limitations.
For example, in Utah, a non-compete agreement cannot restrict an employee from obtaining subsequent employment except as to former employees of certain social media companies. Under The Utah Code Title 34 Chapter 52 Section 34-52-202, noncompete agreements can only restrict a former employee’s ability "to perform or follow the type of work or trade with a former customer or client of the former employer that the former employer provided or was preparing to provide to that former customer or client during the term of the contract."
These limits have further been expanded by the Utah legislature in 2016 to also apply to former employees of certain types of "high tech" firms, such as internet access providers, gaming, mobile development, social media, online marketing and businesses with online presence, or firms that develop computer hardware and software.
Utah code 34-52-202(5)(a) also provides that a non-compete agreement cannot prevent a former employee "from performing an occupation for another employer unless the former employee divulged trade secrets, solicited customers or clients of the former employer, or physically harmed the former employer or property or trade secrets." In other words, unless an employer can demonstrate that the employee’s actions enumerated above prevented the employer’s legitimate business interests, a non-compete agreement in Utah will not be enforced for these reasons.

Are Non-Compete Agreements Enforceable in Utah?

Much like the rest of the United States, the enforcement of non-compete agreements in Utah is dependent on judicial interpretation of three criteria: fairness, necessity, and reasonableness. The latter element is viewed by the courts as a subset of the elements of fairness, necessity and reasonableness. Fairness goes to the attainability of an agreement’s objectives in the context of the broader community; necessity looks to the extent to which enforcement of the agreement serves employer and employee, and reasonableness evaluates how non-intrusive the agreement is on the employee’s right to work.
The standard for determining whether a non-compete agreement is enforceable under Utah law is similar to that employed in many Western states, including California. Utah Court of Appeals decisions hold that a non-compete agreement "is enforceable only if it is (1) reasonably necessary for the protection of an employer’s business; (2) supported by consideration paid by the employer; (3) reasonable in its geographic and temporal scope; and (4) not a special inconvenience to the employee."
The Utah Supreme Court made clear that "[w]e do not require more than that" at the lower court level. Instead, "the policy of the law will be the same for all courts in Utah when faced with enforcement of [non-compete agreements. At trial", the judge is to consider the strength of the evidence and whether it supports a fair interpretation.

Exceptions and Exemptions

Exceptions and exemptions to the Agreement section generally relate to employment by certain types of "employers," including, most notably, a "professional employer organization." Utah Code Ann. § 34-51-201(2). "Professional employer organization" is defined in Utah Code Ann. § 34-51-102(7), and, generally speaking, relates to a company that provides professional employment services to another business, and is comparable to what is known in some jurisdictions as a "staffing agency" or "staffing firm."

The Impact on Employers and Employees

For employers, non-compete agreements can represent an important tool for the preservation of trade secrets and other confidential information, particularly in light of the protections afforded trade secrets and confidential information under the Utah Uniform Trade Secrets Act. Non-compete agreements also help ensure that employees can’t simply quit one job and walk across the street to a competitor’s office and undermine the employer’s valuable business relationships with customers, suppliers, and other employees. For example, sales representatives frequently build strong personal relationships with their customers, which provide the representative and the employer with a significant competitive advantage over other companies. A non-compete agreement can be a valuable protection to preserve that relationship and prevent each employee from shopping his or her contacts as soon as he or she leaves the company. However, while the use of non-compete agreements can help an employer safeguard valuable business relationships and information , indiscriminate use of non-compete agreements can have negative consequences for a business. More commonly, the imposition of overly restrictive non-competes can negatively affect a company’s ability to recruit and retain employees. Employees frequently view non-compete agreements as unfair tools wielded by companies to restrict their ability to find a similar job elsewhere. Less frequently, employees view non-compete agreements as unfair restrictions that bind them to a company for no reason other than the fact that the company is willing to sue employees who try to move on after their employment. For employees, non-compete agreements can be valuable tools for negotiating a job offer and providing them with enhanced bargaining power in setting their initial wages and benefits. Frequently, the signing of a non-compete agreement is accompanied by an offer of additional compensation or other benefits. However, employees should be careful to ensure that they are not agreeing to overly restrictive non-compete agreements that will hinder their ability to secure future employment or pursue their career objectives.

A Checklist for Composing a Legal Non-Compete Agreement

To ensure that your non-compete agreement will be enforceable, be sure to follow a few basic best practices:
Be Specific. The agreement should define the specific activity you want the employee to refrain from in detail sufficient to allow for an objective determination of what is whatever prohibited activity. A broad definition of a prohibited activity can lead to an overly restrictive agreement that will not be enforced. For example, a restriction on soliciting customers is not specific enough to be enforceable. A restriction on contacting particular customers MAY be specific enough to be enforceable.
Be Reasonable. Utah courts have generally held that the more specific the agreement, the less additional restrictions it may require to be enforceable. The agreement should restrict the activity for only as long as required to protect your legitimate business interests. The restriction on the activity should also be as limited as possible geographically.
Be Legal. If your employee works in Utah, make sure your agreement complies with Utah law. If your employee works in another state, be aware that different states have different requirements for enforceability and have generally stricter standards of review for non-compete agreements. Understand that if your employee works in multiple states, you may need to include multiple state-specific provisions in your non-compete agreement.
Be Smart. Employers often overlook the question of whether their business (and its needs) will still be in existence by the time the non-compete becomes effective. Be sure to draft in a way that takes into consideration the possibility that a different employer may be affected by the non-compete. Try to avoid telling the employee how to run a new business and allow the employee to work for a different employer.

How to Handle a Disputed Non-Compete Agreement

When a dispute arises concerning the enforceability of a non-compete agreement, there are several options available depending on the circumstances. For example, parties may attempt to resolve these disputes by negotiation or may bring one or more motions in the appropriate court. In many circumstances, the best way to resolve a disputed agreement is through negotiation. Negotiation may take the form of a formal conference, with or without counsel, or it may be an informal process. If negotiation is unsuccessful, the aggrieved party may file a motion seeking a literal interpretation of the non-compete agreement or seeking an emergent remedy like a temporary restraining order. The movant must show that the court has jurisdiction over the parties and the subject matter of the action, that the non-compete agreement itself is not so unique that it would be impossible to determine whether the non-compete is reasonable or unreasonable, and that sufficient grounds exist justifying the relief requested.
The first task facing the court is to ascertain whether it has jurisdiction over the parties and the subject matter of the dispute. Jurisdiction over the subject matter depends on the nature of the relief sought. Jurisdiction over the parties, however, depends on whether the parties have sufficient contacts with the forum. When a motion dealing with the merits of the non-compete is filed, it is often not contested. More challenging is determining whether the parties have sufficient contacts with the state to justify invoking the jurisdiction of the Utah courts. This determination is governed by a multi-factor test involving the following:
If the defendant has sufficient contacts with the state, the next step is to determine whether the non-compete agreement itself is unusual or unique. If the parties have defined their rights and obligations under the non-compete agreement, the court must decide whether it is reasonable or unreasonable. If it is not unusual or unique, the normal rules governing motions seeking declaratory relief apply. Declaratory judgment rules enable the court to provide for complete resolution of the controversy and to define the parties’ rights, duties, or status. Courts frequently have stated:
Generally, "[a]n action for declaratory relief is available whenever a party claims an interest in property, status, or legal relation, and when it is alleged that the party’s interest is in jeopardy and the party needs a declaration as to legal relations which may have been created or which may arise by virtue of facts on which he bases his claim."
If negotiation fails and the non-compete dispute is litigated, the court, upon a showing of irreparable injury to the plaintiff, may issue an injunction prohibiting the defendant from engaging in the challenged activity. An injunction is an order of the district court forbidding or requiring something to be done. An injunction is usually granted in the absence of factors militating against such remedy, and it is not restricted to the protection of the plaintiff’s remedies.
A temporary restraining order may also be issued to preserve the status quo pending a final disposition. Rule 65(b) of the Utah Rules of Civil Procedure requires the court to make specific findings if it grants a temporary restraining order without notice to the adverse party. Under this rule, the court may issue an ex parte temporary restraining order only if:
In addition, a temporary restraining order may be accompanied by a bond or cash in the amount fixed by the court. In cases where a temporary restraining order is sought to restrain a defendant from threatening to injure persons or public interests, the plaintiff may be required to provide security deemed proper by the court.
An aggrieved party is generally entitled to seek attorneys’ fees and costs in an action in which the covenant has been declared enforceable or unenforceable.

What is the Future of Non-Compete Laws

The regulation of non-compete agreements in Utah is likely to continue to be an evolving area of law. As the economy changes and the nature of work evolves with the rise of the gig economy and increased telecommuting, both courts and legislatures may need to adapt with them. Any substantial changes in the economy may bring about a change in the law. Already, the frequency with which legal practitioners and courts address non-compete agreements ensures that employers and employees will be closely following any trends in their regulation for the foreseeable future.
For employers, the trend toward more regulation of non-compete agreements has both advantages and disadvantages. For one, more regulation means more clarity on what is acceptable and enforceable in non-compete agreements. Are those non-compete agreements that are already relatively narrow in scope always going to be enforceable? Likely not. As with any area of law, evolving legal precedent or legislation may make any non-compete agreement that is not both carefully drafted and tailored to the situation of the employee in question difficult to enforce.
For employees , the likelihood of further regulation of non-compete agreements provides hope for the possibility of future litigation to restrict the enforceability of non-compete agreements.
With this in mind, employers and employees should continue to follow developments in this area of the law and act accordingly. Employers need to be aware that current agreements may become unenforceable, so it may be wise to review your existing agreements, especially if they were not drafted with the recommended care. Employers would be prudent to draft tighter, more specific non-compete agreements going forward to help ensure their future enforceability. Further, non-compete agreements should be accompanied by consideration in the form of a higher pay, a promotion, etc.
On the other hand, employees should be aware of their rights in the context of a non-compete agreement and take these agreements seriously. An in-depth understanding of what is required for a non-compete to be enforceable in Utah will help employees understand their options should an employer threaten to enforce a non-compete agreement against them.