Article
| Publication year | 2014 |
| Pages | 16 |
May 2014
Implementing Noncompete Agreements in Utah: Protecting Business Trade Secrets, Goodwill, and Investment in Employees
William R. Knowlton
Introduction
Some of a company's most valuable assets are its trade secrets, customer relationships, and investments made in training and educating its workforce. As a way of safeguarding against trade secrets being misappropriated by departing employees - many of whom become direct competitors - Utah companies turn to non compete agreements.
According to a study released in February 2013, non compete clauses were included in 78.7% of 1,000 chief-executive employment contracts nationwide in 2010, compared with 72.5% in 2000. See N. Bishara, K. Martin, and R. Thomas, When Do CEOs Have Covenants Not to Compete in Their Employment Contracts?, Vanderbilt Law and Economics Research Paper No. 12-33(Oct. 18, 2012).
Misconceptions abound in the business community about non compete agreements. "Utah is a 'right-to-work' state, so noncompete agreements are not valid," many employees are likely to say. Business owners may privately believe "non compete agreements are not enforceable in Utah, but we should have them in place just to keep the honest people honest."
In Utah, a properly negotiated and structured noncompete agreement is enforceable and can serve the dual purpose of providing departing employees clear expectations upon leaving the company, while simultaneously protecting an employer's trade secrets and goodwill. The Utah Supreme Court has stated that to be enforceable, noncompete agreements must be: (1) supported by consideration, (2) negotiated in good faith, (3) necessary to protect a company's goodwill, and (4) reasonably limited in time and geographic area. TruGreen Cos., LLC v. Mower Bros, Inc., 199 P.3d 929,932 (Utah 2008) (citing Allen v. Rose Park Pharmacy, 237 P.2d 823,828 (Utah 1951)); see also System Concepts, Inc. v. Dixon, 669 P2d 421, 425-26 (Utah 1983) (same).
Good Faith Negotiations: Consideration to the Employee
As with all contract negotiations, noncompete agreements must be negotiated in good faith. TruGreen Cos., 199 P3d at 932. Utah courts are not likely to enforce noncompete agreements if the employer used bad faith negotiation tactics with the employee (such as deception, intimidation, or any manner of coercion) prior to executing the contract. For example, if an employer deliberately induces an individual to enter into a noncompete agreement with the company, only to immediately...
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