My View: Utah House Bill 251 – Post-Employment Restrictions Amendments

Scales of JusticeYesterday, I clicked on the Deseret News and discovered a story of intense interest to me, a story about the Utah business community’s reaction to House Bill 251. I’m a businessperson. I work with businesses in my law practice. I’m about as pro-business as they come. And yet, I support this bill.

A little background–a disclosure, if you will: I have some clients who are currently burdened by non-compete agreements, clients who are very talented in their own right and who would like to start their own businesses. And they’re struggling with how to proceed because those non-compete agreements are worded vaguely enough and their former employer is feisty enough, that if they decide to do anything even close to what their former bosses’s company does, they are confident they’ll be sued for breach of contract.

Here’s the problem. They want to do kind of what they did at their previous employer, but using different tools and working with different clients. In other words, they don’t want to violate the non-competes.  Problem is the tool they want to use is a “hammer,” and one of the tools their former employer sells is, you guessed it, a “hammer,” albeit a different type of hammer that does different things than my clients’ “hammer.” (By now, you’ve probably guessed that I’ve changed the name of the tool for confidentiality reasons.) Nevertheless, per their non-competes, their former boss could come after them under a contract provision that says the following:

“Competitive Products” means any products or services [the former employer] sells or sold or that are competitive with products or services that [the former employer] sells or sold while [my clients] worked for [the former employer].

Do you see the problem? The employer could call virtually any product/hammer my clients use a “Competitive Product” under this definition. The contract then states:

 . . . for a period of two years after my employment with [the former employer] terminates, I will not (a) design, sell, develop, license, or solicit orders for or sales of Competitive Products, nor will I (b) affiliate with any business, whether as an employee, owner, officer, director, or agent, that performs any of the actions described in (a) for Competitive Products. (emphasis supplied)

You know that they say, or at least should say, “if the vagueness doesn’t kill you, the overbreadth will.” The Deseret News and others apparently think such language is fair. What’s good for business and all that. To wit:

[These agreements] keep employees from taking trade secrets or information about company strategies to competitors. They allow companies to invest in training employees without the worry that a competing company can take advantage of such largesse by luring a trained employee away.

Generally, these agreements include reasonable time limits, after which employees are free to work for whomever they wish. (emphasis supplied) (“In our opinion: Response to bill regulating business contracts suggests House leadership is at odds with business community,” Tuesday, March 1, 2016)

The law firm Michael Best agrees, saying

Non-compete agreements protect the goodwill of a company, which is something that a nonsolicitation and confidentiality agreement cannot entirely do. A company’s protectable interests do not just include its trade secrets and confidential information, but also its goodwill. Goodwill is often associated with the people who work for the company, and customers associate certain names and faces with a particular company. The purpose of non-compete agreements is to allow employers to invest in highly-trained employees and to have them work directly with the community and customers, serving as the face of the employer. Employers invest significant time, money and resources in doing so. Employers should be entitled to protect these investments by not allowing the employees who are associated with a company’s goodwill to leave and immediately work for a direct competitor. (What Utah Employers Should Know about House Bill 251, February 22, 2016)

As one who has, with his clients, looked down the barrel of a 2-year prohibition on future employment in the same industry, I suggest the Deseret News reconsider the term “reasonable time limits.” Hardly. Not when you’re prevented from working an an industry you love, an industry you’ve trained for most of your adult life–and not just at your immediate past employer’s. Riddle me this Batman: After that two-year hiatus, how sharp will that employee’s saw be?

What is a direct competitor by the way? Inquiring minds would like to know before they venture out, only to get swatted down by a rolled-up copy of their non-compete agreement. Until a judge says otherwise, a direct competitor is what the former employer says it is. And if the former employer is a bully? (What’s the saying? “Power corrupts; absolute power coupled with a non-compete corrupts absolutely.”)

As for the attorneys at Michael Best, employers are not the only ones investing significant time, money, and resources in training. So do the employees. Do employers think their employees came to them as blank slates? Heck no. By the time they arrive on an employer’s doorstep, employees have likely done years of schooling, including post-graduate work in many cases. They’ve probably worked for myriad other employers, gaining valuable skills, skills they’ve brought to their new employer’s table. And because they signed a non-compete–probably in a rush, possibly in glee at finally having a new job, likely without understanding fully the contract’s meaning, and surely not comprehending its consequences–an employer, generally a person they barely know, gets to control them for another two years–after they’ve left his or her employ.

You can bet the employer has thought this all through.

The problem, folks, is the playing field is uneven: The employer has the job, the salary, and the benefits. The potential employee needs a job, the money, and health insurance. The employer has thought the non-compete issue through many times. For the potential employee, it’s probably a problem of first impression. It’s car salesperson vs. car buyer. Price negotiation, finance terms, do you want the 2- or 5- year warranty on that doohickey vs. huh? In other words, unfair.

Hey, I get the impulse. I even understand that in some circumstances such agreements make a ton of sense. But not in all. In fact, I’d guess they make sense in very few cases. That said, I’ve just thought of a couple of potential compromises, so the Senate can vote yes on this puppy:

  • If an employer feels strongly enough about requiring employees to sign such agreements, then require the employer to split the cost with the potential employee of one hour with an attorney versed in such agreements.
  • In the alternative: Utah maintains offices throughout the state to deal with workforce issues. Require employers to send potential employees to consult with someone at the Department of Workforce Services about the consequences of signing such a contract–before they sign.
  • Finally, my least favorite, but better-than-nothing option: Require the employer thoroughly disclose the possible consequences of signing a non-compete–again, before the potential employee signs.

In short, if we’re going to allow these agreements in Utah, if we’re going to allow a virtual stranger to have control over an employee for two years after they’ve left a job, let’s give some protection to that employee. Do that so that if and when the employee actually does sign the non-compete, there truly has been a meeting of the minds.

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