On March 22, 2016, the governor of Utah signed into law H.B. 251, the Post-Employment Restrictions Act. This was one of the most controversial bills considered this last session, and it underwent many changes through the course of debate and negotiation. The bill limits the scope of Utah post-employment restrictive covenants entered into on or after May 10, 2016, and could likely have an impact on enforcement of older non-compete agreements as well. It specifies that a non-compete agreement is void if it purports to extend for more than one year following the termination of employment. The bill provides also for remedies to employees, including attorney fees, costs, and actual damages for an employer’s attempt to enforce an unenforceable post-employment restrictive covenant. The bill does not expressly limit the remedies section to post-May 10, 2016, non-competes.
The bill’s restrictions as to the scope of non-compete agreements are not retroactive and, as such, do not affect the enforceability of agreements entered into prior to May 10, 2016. The bill also explicitly excludes from its purview “reasonable” severance agreements, nonsolicitation, nondisclosure, and post-employment restrictive covenants related to the sale of a business. The implication is that post-employment restrictive covenants will require specific consideration in exchange for the restrictions.
The caution here is that Utah employers will now need to review their current form agreements to ensure they will not be void with respect to employees who sign them following the May 10, 2016 deadline. Employers should also review all of their current agreements to determine whether the agreements may be unenforceably overbroad under current case law, thus potentially exposing them to a judgment for attorney fees, costs, and damages.
— Mark O. Morris and Jordan Lee, Snell & Wilmer, LLP, Salt Lake City, UT