Rise and Shine CLE presented on May 26, 2016 in Salt Lake City, Utah before the Litigation Section of the Utah State Bar. Christina M. Jepson

1. Rise & Shine CLE
To Compete or Not Compete?
That Is the Legislation
Panel Members
Christina Jepson
Lauren Scholnick
Nathan Thomas
Erik A. Christiansen
May 26, 2016 | Salt Lake City, Utah
parsonsbehle.com

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Post Employment Restrictions Act
 34-51-101 to 301(General Labor Code)
 Fury of legislative activity
 4 sections
– Definitions of post-employment restrictive covenant
– Post-employment restrictive covenants limited to one
year
– Exceptions
– Remedies
• Award of arbitration cots, attorney fees and court costs, and
damages

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As used in this chapter:
(1) (a) "Post-employment restrictive covenant," also
known as a "covenant not to compete" or "noncompete
agreement," means an agreement, written or oral,
between an employer and employee under which the
employee agrees that the employee, either alone or as
an employee of another person, will not compete with
the employer in providing products, processes, or
services that are similar to the employer's products,
processes, or services.

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(b) "Post-employment restrictive covenant" does not
include nonsolicitation agreements or
nondisclosure or confidentiality agreements.

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34-51-201. Post-employment restrictive covenants.
In addition to any requirements imposed under
common law, for a post-employment restrictive
covenant entered into on or after May 10, 2016, an
employer and an employee may not enter into a post-
employment restrictive covenant for a period of more
than one year from the day on which the employee is
no longer employed by the employer. A post-
employment restrictive covenant that violates this
section is void.

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34-51-202. Exceptions.
(1) This chapter does not prohibit a reasonable
severance agreement mutually and freely agreed
upon in good faith at or after the time of termination
that includes a post-employment restrictive covenant.
A severance agreement remains subject to any
requirements imposed under common law.

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(2) This chapter does not prohibit a post-employment
restrictive covenant related to or arising out of the sale
of a business, if the individual subject to the restrictive
covenant receives value related to the sale of the
business.

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34-51-301. Award of arbitration costs, attorney
fees and court costs, and damages.
If an employer seeks to enforce a post-employment
restrictive covenant through arbitration or by filing a
civil action and it is determined that the post-
employment restrictive covenant is unenforceable,
the employer is liable for the employee's:
(1) costs associated with arbitration;
(2) attorney fees and court costs; and
(3) actual damages.

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“Restrictive covenants are generally upheld by the
courts where they are necessary for the protection
of the business for the benefit of which the
covenant was made and no greater restraint is
imposed than is reasonably necessary to
secure such protection.” Allen v. Rose Park
Pharmacy, 237 P.2d 823, 826 (Utah 1951)
(emphasis added).
Enforceable
Non-Compete Agreements

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“Covenants not to compete are enforceable
if carefully drawn to protect only the
legitimate interests of the employer.”
Robbins v. Finlay, 645 P.2d 623, 627 (Utah
1982).
Legitimate Interests

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 Consideration
 No bad faith in negotiations
 Necessary to protect some legitimate
interest
 Reasonable in time and space restrictions
 Services are special, unique or
extraordinary
The Common Law Non-Compete
Requirements in Utah

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 Under Utah law, continued employment, in and
of itself, may be sufficient consideration to
support a non-compete agreement. See System
Concepts, Inc. v. Dixon, 669 P.2d 421, 426-27
(Utah 1983)
 This is not true in many jurisdictions
Consideration

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The reasonableness of a non-compete
agreement depends upon several factors,
including the duration and geographical
scope of the agreement, the nature of the
employee’s job duties, “and the nature of the
interest which the employer seeks to protect
such as trade secrets, [or] the goodwill of
[its] business[.]” Robbins, 645 P.2d at 627.
Legitimate Interests

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 Information that derives economic value
from not being generally known
 Not readily ascertainable by proper means
 Reasonable efforts to maintain secrecy
What is a Trade Secret?

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“Upon termination of his employment, an
employee has the prerogative to use his general
knowledge, experience, memory and skill,
however gained, provided he does not use,
disclose, or impinge upon any of the secret
processes or business secrets of his former
employer.”
Microbiological Research Corp. v. Muna, 625 P.2d
690, 697 (Utah 1981)
General Knowledge and
Experience vs. Trade Secret

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Thank You