What to know about non-competes in employment contracts

What to know about non-competes in employment contracts

Non-compete employment agreements vary by each state as to its breadth, scope and enforceability. This can be tricky for employees that may have moved within the company during their employment. California has the strictest regulation where any non-compete entered between an employer and employee in California is void with the exception if the employee had an attorney review the non-compete agreement prior. Each state where the non-compete is trying to be enforced will have different criteria and standards on its enforceability.

How is a non-compete enforceable in Utah?

In Utah, a court will look at the reasonableness of the non-compete clause. This includes the geographic location of a non-compete agreement. If an employee worked in a state for a few years, then was relocated to another state a few years after that and perhaps another state after that, to the point where the company claims a person cannot work in several states after termination of the agreement, the court will look to see if that is reasonable.

This happens a lot for individuals that are in sales jobs. A lot can depend on what the company is trying to protect balanced with an employee’s right to seek other employment. It could also depend on the length of time a person worked in that state and the contacts that person made in that state and if they are still in contact with those individuals in that state. It can also depend on what information that employee had to find new clients.

How long can a non-compete last in Utah and when does a non-compete start?

In Utah, employment non-compete agreements can only last for one year. That is one year after the date the employment ends. Once employment ends, the employee cannot work for another competing company for one year. If the language of the non-compete clause extends for a longer time than one year or if the start-time for the non-compete is after the termination of employment, the non-compete clause could be unenforceable.

Is a non-compete enforceable at the time of termination of employment?

Utah law also allows companies to put in non-compete clauses in severance agreements at the time of termination with the company. So even though an employee was never under a non-compete while working with the company, if an employee signs a non-compete at termination in exchange for severance, that person will still be subject to the non-compete clause during their time of employment.

How do I know if a non-compete clause is legally enforceable?

When entering into a non-compete agreement, it is best to have an attorney review the agreement prior to ensure that the contract is legally valid and both sides get the benefit of the bargain for the agreement. If the company wants a person to sit on the sidelines for one year in an industry their career is based on, that person should get some kind of compensation in exchange for that time-frame.

Many companies in their contracts claim that continued employment or salary is proper exchange of promises for the contract to be valid. However, that only compensates the employee under the agreement for employment services. It does not compensate the employee for sitting on the sidelines and additional compensation would most-likely be needed in order for the non-compete to be enforceable.

Utah law also generally does not allow non-compete clauses between employees of broadcasting companies with a few exceptions.

There are also other factors to determine the enforceability of a non-compete clause. Companies should be careful about what employees should enter into non-compete clauses. If a court finds that a non-compete clause is unenforceable against an employee, under Utah law, that employee can recover his or her attorney fees and court costs and actual damages.

What can happen if I violate a non-compete clause?

If a person violates a non-compete agreement, the former company can file a lawsuit against the former employee. The company can also get injunctive relief at the inception of the case. Injunctive relief can be a court order barring an individual from working with the new company during the court proceedings.

This can affect the company the new employee is working with and they may also be part of the lawsuit. If there is a liquidated damages clause in the non-compete agreement, the company also may be entitled to liquidated damages, which is a specified amount of damages in the contract.

The company would have to prove actual injury in order to prevail, meaning they have to show that the employee competing against them actually lost business for the company which at many times can be tricky to prove. If they can, the employee would be liable for those damages.

If an individual gets a cease and desist letter in the mail, this doesn’t typically indicate that a lawsuit has been filed and is usually just a warning letter. In order for the company to try and enforce the non-compete agreement, they would have to file a civil action in state court and serve the employee with a formal summons and complaint with instructions on how to respond to the complaint.
Reach out to our Utah employment attorney today for more information on your specific case and further questions you may have on non-compete clauses and their enforceability.