No further action on non-competes - for now

By BRICE WALLACE

A controversial bill from the 2016 legislative general session won’t get a sequel, at least for now.

HB251, passed last year, limited non-compete agreements — whereby an agreement is reached between a company and a worker prohibiting the worker, upon leaving the company, from competing with the company by offering products, processes or services similar to those offered by the company — to one year after the employee is no longer employed by the company.

But that bill’s sponsor, Rep. Mike Schultz, R-Hooper, recently announced that further legislation about non-competes will not be pushed during the current general session. The move comes after a study commissioned by the Salt Lake Chamber indicates that most employers surveyed have not made, or noticed, any changes in employment practices since HB251 passed.

However, both Schultz and the chamber’s leader indicated further legislation is possible sometime after this year’s general session ends March 9.

“We are heartened that the data confirms the merit of our attention to this important issue for Utah’s economy,” Schultz said in a statement about the study. “The results of the study demonstrate that last year’s bill is working well, addresses important concerns from both sides of the issue, and strikes a balance between protecting the interests of both employees and employers.”

The issue “matters to many,” he said. “Rather than running legislation on non-compete agreements this year, myself and Rep. Hawkes remain committed to working with our group and other stakeholders to utilize this research and to build the optimal solution for Utah’s long-term economic health.” Rep. Timothy Hawkes is a Republican from Centerville.

Many business leaders have said such agreements are necessary to protect proprietary ideas, inventions or processes, while others believe they are unnecessary and could thwart Utah’s ability to attract workers to the state and workers’ ability to move from company to company.

Last’s year’s compromise bill came after an initial measure was proposed to ban non-compete pacts entirely.

In releasing the study results, the chamber said it worked with the Legislature, the Labor and Employment Section of the Utah State Bar, industry associations and chambers across the state to get employer and employee perspectives on the issue. Conducted by research firm Cicero, the study included 2,000 employees and 937 employers. The study also included involvement of focus groups and interviews with potential investment firms.

“The results of the study demonstrate that HB251 in 2016 is working, addresses concerns from both sides of the issue, and creates a balance between protecting the interests of both employees and employers,” the chamber said. “Due to this and our collaborative process, there has been agreement for no further legislation regarding non-compete agreements during this legislative session.”

“We will also continue work in good faith efforts with the working group and other stakeholders, to utilize this research and take the sufficient time outside the legislative session to consider further legislation that further enhances the balance between protecting the interests of both employees and employers,” said Lane Beattie, the chamber’s president and chief executive officer.

The only prominent bill on the matter in the 2017 session has been HB81, but it failed by a 49-22 vote in the House after squeaking through a House committee by a 6-5 vote.

In a recent op-ed in the Deseret News, Josh James, founder and chief executive officer of software company Domo, said non-compete agreements should be prohibited. Domo eliminated non-compete agreements last year.

“Allowing companies to sideline talent and restrict the flow of skilled workers is bad policy that’s harmful to Utah’s economy and families,” he wrote.

He said trade secret laws are better than non-compete agreements because they protect company secrets “without stifling the talent pool.” He added that venture capital would still flow into Utah without non-compete agreements, that certain non-compete agreements are unenforceable, and that “I don’t own an employee because I taught him.”

“When a company stops an employee from utilizing and further developing his skills after he leaves, that’s not only bad for the employee, it’s bad for our economy,” James wrote.

In a Salt Lake Tribune op-ed, Fraser Bullock, co-founder and senior advisor at Sorenson Capital, said “we need to be extremely careful” in adding any new regulation. Bullock said that while non-compete agreements are critical, “I also recognize there needs to be a careful balance between protecting corporate assets and allowing mobility within our economy by the talented employees who build great enterprises. That is why I was pleased to see a compromise reached on restrictive covenants during the last legislative session in Utah.”

Some highlights from the chamber study, available at www.slchamber.com/noncompetestudy, include:

• 57 percent of employers and 70 percent of employees say HB251 will have little to no impact on their organization. Thirty-six percent of employers say it will have a negative impact, and 69 percent of employers believe HB251 will have a negative impact on their ability to protect proprietary ideas, inventions or processes.

• 53 percent of employers believe expanding non-compete legislation would negatively impact their organization.

• 40 percent of employers say they require at least some portion of their workforce to sign a non-compete agreement as a condition of employment.

• 17.8 percent of all employee respondents say they have signed a non-compete agreement with their current employer.

• 35 percent of employees have been asked to sign one at some point in their career, and 86 percent have signed one during their career.

• 5 percent of employees indicated they will not work for an employer if they are asked to sign a non-compete agreement.

• 90 percent of employers and 74 percent of employees agree that non-compete agreements should be allowed, so long as they are reasonable and for a legitimate purpose.

• Opinions on the maximum term of agreements vary. Twenty-nine percent of employers and 46 percent of employees agree with a term of one year or less.