As a business owner, you put a lot into your company – developing trade secrets, cultivating client relationships and training your employees. When someone leaves to work for a competitor, you want to protect what you’ve built. This is where restrictive covenants, like a “Covenant Not to Compete,” come into play.
But how effective are they? Can you really prevent a former employee from working for a competitor in Utah? The answer is nuanced: yes, you can enforce them; but only if they follow specific rules.
Enforceable, but within strict limits
Utah law recognizes the legitimate need for businesses to protect their interests. At the same time, it seeks to balance this with an individual’s right to earn a living. A noncompete agreement must meet specific criteria to be upheld by a court.
For noncompete agreements entered into on or after May 10, 2016, Utah law limits the post-employment restrictive period to no more than one year from the employee’s last day. You must adhere to this critical timeframe.
Beyond the time limit, your noncompete must be:
- Supported by a legitimate business interest: This is fundamental. You must be protecting something tangible. This could include trade secrets, confidential information, customer lists, established client relationships or specialized training you paid for.
- Reasonable in scope: The agreement cannot be overly broad. It must be reasonable in:
- Geographic reach: It should only cover areas where you do business
- Prohibited activities: It should only restrict job duties that directly compete with you
- Who it reaches: It should only restrict employees who render services that are “special, unique or extraordinary”. System Concepts, Inc. v. Dixon, 669 P. 2d 421 (1983). In other words, non-compete agreements are generally unenforceable against regular employees. Instead, a non-compete clause can only restrict an employee that may compromise a legitimate business interest if the employee were to leave for a competitor.
- Supported by “consideration”: The employee must receive something of value in exchange for signing – typically the job itself or continued employment for an existing employee.
- Properly disclosed: For prospective employees, the noncompete must be provided before an offer of employment. For existing employees, you generally need to provide at least two weeks’ notice before requiring them to sign.
Understanding these requirements thoroughly will help ensure that your noncompete agreements stand up to legal scrutiny and effectively protect your business interests.
The risk of overbreadth
If your agreement asks for too much, a Utah court may refuse to enforce it entirely. Alternatively, the court might “blue-pencil” (reform) it to make it reasonable. While reformation is possible, relying on a court to rewrite your agreement isn’t ideal. The result may not align with your specific business needs.
When to consult legal counsel
Drafting an enforceable noncompete is not a DIY project. The precise wording, specific business interests you aim to protect and compliance with current legal requirements are paramount. Using a generic template often leads to unenforceable agreements, leaving your business vulnerable.
Protecting your – from proprietary information to client relationships – requires meticulously crafted legal documents. Therefore, before implementing or seeking to enforce a noncompete agreement, consult with experienced legal counsel who understands Utah business regulations. They can help you draft a tailored, defensible agreement designed to effectively protect your legitimate interests, ultimately giving you peace of mind.