Perspective: Kirton McConkie Law Blog

Utah Passes New Law Placing Restrictions on Noncompetition Agreements

On March 9th, 2016, the Utah Legislature passed a bill, which the governor signed, substantially limiting an employer's ability to use noncompetition covenants to prevent former employees from competing against them. The new law limits the duration of noncompetition covenants entered into after May 10th, 2016 to one (1) year. According to the statue, any noncompetition covenant that violates the law, including the one-year limitation, "is void."

Employers need to take this change seriously. The statute imposes potential liability on employers who seek to enforce noncompetition covenants that a court or arbitration panel decides is not enforceable. If the noncompetition covenant is determined to be unenforceable, then the employer "is liable" for the employee's arbitration costs, attorney fees, court costs, and actual damages.

Not all noncompetition covenants are subject to the new restrictions. The new law does not impact existing noncompetition covenants. It also does not impose the new restrictions on noncompetition covenants entered into before May 10th, 2016. Employers may be inclined to have their employees sign noncompetition agreements before May 10th, 2016 to avoid the new restrictions.

Covenants embedded in "mutually and freely agreed upon" severance agreements at the time of termination of employment are specifically exempted from the statute's restrictions. The statute also does not prohibit a restrictive covenant relating to or arising out of the sale of a business in which value is given in exchange for the purchase of the business. The statute also carves out nonsolicitation agreements and nondisclosure or confidentiality agreements.