When you run a business, your employees (and former employees) present many risks. For example, what if one forms a business similar to your own – or joins a competing business? Or what if one sells your confidential information – recipes, formulas, client lists, and so on?
Either of these contingencies could ruin you, which is exactly why non-compete agreements and trade secret protection exist. Respectively, they assure a business owner of two things: their future competitor isn’t currently on their payroll, and their company secrets will remain under lock and key.
Agreements like these are subject to multiple laws, including federal, state, and municipal. They can all impose their own specific requirements, which is why it’s crucial to choose a local attorney to represent your business. In this article, we’ll briefly review how the state of Utah addresses these areas of contract law.
Utah’s Non-Compete Agreement Laws: 1-Year Limit and Enforceability
The Federal Trade Commission (FTC) proposed and voted to ban most non-compete agreements in April 2024. The rule was scheduled to take effect on September 4, 2024, but a federal court issued a nationwide injunction blocking it from taking effect.
If the ban is not reinstated, then under Utah law, non-compete agreements for employees are limited to 1 year. Drafting a non-compete agreement with a longer term can make the non-compete totally void. Non-competes must also be reasonable in their geographic limitations.
Also, your professional association’s code of ethics may also determine whether you should or shouldn’t offer a non-compete agreement. Like many other contractual provisions, a non-compete agreement requires the employee to abstain from doing something they are otherwise legally allowed to.
If you expect the court to enforce a non-compete agreement, you may also have to demonstrate that it was (A) reasonable, part of an otherwise valid contract, and (B) necessary to preserve your business.
Non-compete agreements are typically only enforced when the employee serves a unique and/or otherwise extraordinary function for their employer. In other words, a fast food restaurant may non-compete the chemist who develops their flavors, but not a cashier. This ties into the “necessary to preserve your business” element of non-compete agreements, which brings us to:
Trade Secret Protection in Utah: Federal and State Law Considerations
A non-compete agreement may be enforceable regardless of whether the employee is fired or leaves the business of their own accord. It can prevent them from starting their own similar business, or performing a similar role at another business.
Trade secret protection serves a similar purpose. But rather than prohibiting the employee from working for (or becoming) the business’s competition, it prevents the employee from benefitting the business’s competition by selling confidential information to it.
Trade secrets are formally protected by federal law. They are additionally protected by Utah state law. That’s because ours is one of the 48 states that adopted the Uniform Trade Secrets Act, which may impose civil liability on anyone who acquires and discloses trade secrets. Significantly, this means that a contract doesn’t necessarily have to include a trade secret protection provision (although its inclusion typically couldn’t hurt).
Protecting Your Business Interests: When to Seek Legal Counsel
We have provided only the most cursory explanation as to how Utah state law addresses non-compete agreements and trade secret protection. With that said, contract law is byzantine. Successfully navigating it requires years of specialized education and experience.
Do you own or manage a business, and wish to ensure your employees can’t harm its interests? Or are you considering an offer from an employer, and want your own attorney to scrutinize the contract you would sign? Then we encourage you to contact Hillyard, Anderson & Olsen, P.C. of Logan, UT today!