Despite flying under the radar early in the general session, the bill exploded in controversy, with prominent businesspeople taking stands on each side of the issue. What ultimately passed was the 11th version of the bill — an iteration that was virtually the exact opposite of one earlier passed by the House.
If ever the legislative grinder worked overtime, it was with HB251.
Despite flying under the radar early in the general session, the bill exploded in controversy, with prominent businesspeople taking stands on each side of the issue. What ultimately passed was the 11th version of the bill — an iteration that was virtually the exact opposite of one earlier passed by the House.
Initial versions would have banned employers from having post-employment, non-compete agreements with employees, with exceptions for non-compete contracts to protect trade secrets, plus proprietary or confidential information or process of the employer. The final version allows non-compete agreements, with certain exceptions. It limits the agreements to one year and allows employees to recover costs and damages if an agreement is determined through legal proceedings to be unenforceable.
Before the final version, bill opponents said that non-compete agreements are vital in their industries. Proponents, meanwhile, said agreements are too prevalent, too restrictive to employees and can stifle economic vitality, especially in the tech industry when a person leaves a company to create a startup venture or wants to work for a competitor.
One thing many people agreed on was that the bill was controversial.
“In the 12 years I have spent as president of the chamber, no other issue has generated such a level of concern within our business community,” Lane Beattie, president and chief executive officer of the Salt Lake Chamber, said near the end of the session. “This concern is shared across the spectrum of industries in one of the most diverse economies in the nation and includes business of all sizes.”
Generally, many people viewed the final version of the bill to be a good compromise and agreed that the issue likely will be discussed further during the Legislature’s interim session and perhaps the next general session.
The Utah Technology Council, in its legislative summary, described HB251 as “a surprisingly good compromise bill.”
“This has been a valuable discussion, as the Legislature has elevated issues surrounding non-compete agreements within Utah’s business community,” Beattie said after the final version was approved. “Business leaders are now evaluating the validity of their existing agreements. This is a positive development for all involved, though we understand that some businesses will continue to have concerns about this proposal. The Salt Lake Chamber commits to working with businesses and the sponsors to continue this dialog through the interim and future legislative sessions.”
Theresa Foxley, deputy director of the Governor’s Office of Economic Development (GOED), said at the March GOED board meeting that the bill “represents a fairly good compromise” when compared with its original version. She estimated that 80 percent of companies are OK with the bill, acknowledging that others still want longer agreement periods or other fixes.
“I don’t think this is the last we’ll hear about non-competes,” she said, noting that other states are considering similar legislation and three have banned non-compete agreements.
HB251’s journey started in a House committee, where it advanced by an 11-0 vote, followed by a 72-0 passage in the full House. It called for a ban on non-competes, with some exceptions. By the time a second substitute version reached a Senate committee, it had garnered lots of attention. At the committee hearing March 4, 13 people spoke in favor of the bill and 18 spoke in opposition. The final version — keeping non-competes, with some exceptions — passed the full Senate by a 22-6 vote and the House voted 71-2 to concur with the Senate changes.
The bill, sponsored by Rep. Mike Schultz, R-Hooper, allows for non-compete agreements for up to one year if an employee leaves a company and agrees to not compete with the former employer “in providing products, processes or services that are similar to the employer’s products, processes or services.”
The bill does not affect non-solicitation agreements or nondisclosure or confidentiality agreements. It also does not prohibit a “reasonable” severance agreement that includes a post-employment restrictive covenant.
Critics of the early versions of the bill said non-compete clauses are vital to protect many companies and their trade secrets. Some said it was a “one-size-fits-all” bill that might be appropriate for the tech industry but not others. Among them was TJ England, general counsel at trucking company C.R. England, which provides training and education to employees in exchange for 6-to-9-month non-compete agreements.
Before the final version was introduced, several Utah tech leaders voiced concerns about what they considered to be antiquated non-compete laws in Utah. They contended that the free flow of talent among companies is beneficial to the state’s economy.
Dave Elkington, chief executive officer of InsideSales.com, said non-compete agreements “stunt innovation and fly in the face of free markets.” Ryan Smith, co-founder and CEO of Qualtrics, described them as “old-school restrictions that hurt growth.”
Many contended that while non-compete agreements make sense for senior executives and others who have access to sensitive and proprietary information, they do not make sense for lower-level personnel.
“As long as employees don’t harm their former companies by taking proprietary information, they should be free to work where they choose,” said Josh James, founder and CEO of Domo. James also called non-compete agreements “un-American” because “in essense, it helps you keep your employees as indentured servants.”
James was among several company leaders who said their businesses would get rid of most or all of their non-compete agreements.
“Non-competes too often hinder hiring and innovation by restricting the fluid movement of employees across a region,” said John Pestana, co-founder of ObservePoint. “In Utah, where the cycles of innovation and entrepreneurship are spinning faster than ever, non-compete policies risk keeping high-impact individuals in low-impact roles. It’s like trying to steer a speedboat while dragging anchor.”
