A Utah employer generally may require its employee to sign a non-compete agreement whereby the employee agrees not to compete with the employer after the employment relationship terminates. However, not all non-compete agreements are enforceable.
Prior to 2016, Utah courts would enforce a non-compete agreement if the employer could show: (1) the agreement was supported by consideration; (2) there was no bad faith in the negotiations of the agreement; (3) the agreement was necessary to protect the goodwill of the business; and (4) the agreement was reasonable in its restrictions of time and geographic area. See Bad Ass Coffee Co. of Hawaii v. JH Nterprises, L.L.C., 636 F. Supp. 2d 1237, 1245 (D. Utah 2009). Regarding the time factor of the fourth element, the Utah Supreme Court had determined that a non-compete agreement lasting for two years after employment was reasonable. See Sys. Concepts, Inc. v. Dixon, 669 P.2d 421, 426 (Utah 1983).
The Utah legislature’s passage in 2016 of the “Post-Employment Restrictions Act” modified the non-compete agreement enforceability framework in two significant respects, both of which became effective May 10, 2016. See Utah Code Ann. § 34-51-101.
First, “post-employment restrictive covenants”—essentially, any employer-employee agreement under which the employee agrees not to compete with the employer after the employment relationship terminates—may not last longer than one year from the day on which the employee separates employment. See Utah Code Ann. § 34-51-201. However, this rule does not apply to good faith severance agreements made at or after the time employment ends. This rule also does not apply to post-employment restrictive covenants related to the sale of a business, so long as the individual subject to the restrictive covenant receives value related to the sale of the business. See Utah Code Ann. § 34-51-202.
Second, if an employer seeks to enforce a post-employment restrictive covenant through arbitration or by filing a civil action, and the covenant is unenforceable, the employer is liable for the employee’s attorney fees, costs, and actual damages. See Utah Code Ann. § 34-51-301.
Importantly, the act does not completely replace the analysis Utah courts have used in the past; rather, these restrictions are in addition to the requirements courts had previously imposed. See Utah Code Ann. § 34-51-201. The act also does not apply to nonsolicitation, nondisclosure, or confidentiality agreements. See Utah Code Ann. § 34-51-102.