New Limitations on Post-Termination Noncompete Agreements in Utah

With a stroke of the pen, Utah Governor Gary Herbert has signed into Utah law the Post-Employment Restrictions Act. This act sets a maximum limit on the duration of post-employment noncompete agreements between employers and employees. This new law goes into effect on May 10, 2016 and applies to all agreements entered into on or after that date.

Under the new law, a noncompete provision in a “post-employment noncompete agreement” can only be for the maximum period of one year from the employee’s date of separation. Any “post-employment noncompete agreement” that contains a noncompete restriction of more than one-year will be void.

A “post-employment noncompete agreement” is defined as “an agreement, written or oral, between an employer and employee under which the employee agrees that [he or she], 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.”

The new law does not affect nonsolicitation agreements, nondisclosure agreements, or confidentiality agreements. Additionally, a “reasonable” severance agreement can contain a longer noncompete restriction provided that the severance agreement was “mutually and freely agreed upon in good faith at or after the time of termination”. A post-employment restrictive covenant related to or arising out of the sale of a business is also not subject to this restriction provided that “the individual subject to the restrictive covenant receives value related to the sale of the business.”

Impact on Utah Employers

This law has a significant impact on employers who employ persons in Utah. If your Company requires its Utah employees to sign agreements with post-employment restrictions, it is recommended that you review these agreements to ensure that any noncompete restriction complies with the new law.