Your Employee's Non-Compete Might Not Be Enforceable Anymore: Here's what you need to know.

• Author: Welch, Ben T.

In 2016, the Utah Legislature took an aggressive step in limiting non-compete agreements. Among other provisions, the legislature limited non-compete agreements entered into or after May 10, 2016 to one year. (Any non-compete agreements longer than one year were automatically void with the new provisions.) Further, if an employer sought to enforce a non-compete and that agreement was deemed unenforceable, the employer was liable to pay that employee's damages, costs, and attorney fees.

NEW LEGISLATURE LIMITS NON-COMPETES

In the wake of these changes, employers seeking to enforce non-compete agreements faced a dilemma. On the one hand, they could decline to enforce the non-compete, which put them at a competitive disadvantage. On the other hand, they could enforce the non-compete, recognizing that they would incur liabilities if they lost. (The second option has become increasingly undesirable given the courts' general attitude of disfavoring non-compete agreements.)

BUT EMPLOYERS FOUND A LOOPHOLE

Faced with this dilemma, enterprising employers found a loophole. Instead of litigating their claims as breach of a non-compete, more and more employers are repurposing the same claims as the "misappropriation of trade secrets." In so doing, they tip the scale back in their favor, placing all liability on the former employee. How are they able to do this? The answer is found in the broad language of Utah's Trade Secret Act (UTSA).

The UTSA defines a trade secret as having three components:

1. It is information that derives value from not being "generally known."

2. The information is not "readily ascertainable by proper means."

3. The information is subject to protective measures that are "reasonable under the circumstances." (Utah Code Ann. [section] 13-24-2(4)).

This definition is highly fact-dependent and has been interpreted to include virtually anything. Customer lists, vendor lists, the type of equipment used in manufacturing processes, and even the names of former employees can be classified as "trade secrets" provided they meet the criteria outlined above.

WHAT EMPLOYEES NEED TO KNOW

But what exactly is misappropriation? Though it can mean acquiring a trade secret through theft, bribery, misrepresentation, and other improper means, it can also mean disclosing a known trade secret without consent of the company. (Utah Code Ann. [section] 13-24-2(2)). For example: A salesman leaves Door Manufacturer number 1 to join a...