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Noncompete bill is catching heat

A measure to limit the scope of noncompetition contracts — including how long they can be enforced — is catching heat from Utah's business community.

Sen. Ed Mayne, D-West Valley, told the Business and Labor Interim Committee on Wednesday that legislation is needed to ensure that employees in "common calling" jobs — those without "skills or talents that are special, unique or extraordinary" — can find employment in their industry once they leave or are laid off by an employer.

Mayne said a draft bill, based on a bill proposed during the general session earlier this year, is being formulated.

As currently written, the bill would make unenforceable any noncompetition contract prohibiting the former employee from working for a competitor outside the geographic area where the employee previously worked.

Contracts also would not be able to be enforced if the noncompetition provision lasts more than a year after the employee no longer works for the first company; if the employee is a common-calling worker or possesses no unique skills; or if the employment is terminated by the first company without just cause.

Mayne emphasized that people with unique skills and talents should be subject to such contracts. "But what we want to do is take a hard look at what we call common calling, where there are a large pool of employees that shouldn't be put into noncompetition agreements," he said.

Attorney Lauren Scholnick said salespeople, line cooks, salesmen and even housecleaners have been subjected to noncompetition contracts — usually without extra pay or other compensation that is common in high-tech companies for employees signing such pacts.

The contracts make sense for people who are vice presidents of sales or vice presidents of marketing, she said.

"What we're seeing now is employees involved in what the courts have called common calling are being restricted in being able to provide for their families because they have signed these noncompetes, and they are terrified to go to work in the only field that they know because they're afraid that their employer is going to see them, so they just don't do it. So they're out of work or they're working for less money than they would be able to make if they were actually working within their skill set."

However, Sen. Michael Waddoups, R-Taylorsville, said some fields, especially technical ones, probably need a noncompetition period of longer than a year. "I don't think saying that 'one year in all cases' would allow a person variation in some of those highly technical fields," he said.

Scholnick said the Uniform Trade Secret Act protects trade secrets from being divulged to competitors, and nonsolicitation contracts can be written to ensure a former employee is prohibited from calling on his former company's clientele for a certain period.

Several people told the committee Wednesday that the proposed legislation is fraught with land mines.

Jonathan Johnson of Inc. said Utah courts have clearly established what is enforceable and what is not in noncompetition contracts. "The law is already ample, it's clear and it works," he said.

Salt Lake-based Overstock has only a few dozen workers with such contracts, and they are provided bonuses or other consideration for that, he said. The geographical limitation would be a hindrance as Overstock deals with competitors recruiting its employees to work in Boston and Seattle, "and that will severely damage our business," he said.

Richard Nelson, president and chief executive officer of the Utah Information Technology Association, also said technology "doesn't have a geography."

"Noncompetes have a legitimate purpose," Johnson said. "They protect the goodwill of the company, and when they are enforced, they don't keep employees from making a living. They keep employees from working for competitors. That's the difference."

Johnson said Mayne's proposal would be anti-business, and Nelson said it "would erode" Utah's reputation as a business-friendly state.

Rep. Michael Morley, R-Spanish Fork, said former employees may have special training or access to methods and client lists "that may be proprietary or able to damage an employer."

Dewey Reagan of Reagan Outdoor Advertising said his company spends a lot of money training salespeople and real estate reps, and many frontline employees are operating in specialized areas and have "a tremendous amount" of confidential information about pricing and agreement lengths. That information, he said, could be used against the company later if the employees were considered common calling or their noncompetition agreements were limited to one year.

Robin Riggs, vice president and general counsel for the Salt Lake Chamber, said terms such as "common calling," "just cause" and "geographic area" are difficult to define. Mayne said an option may be to put a number on the job type, meaning a threshold — say, 1,000 or 2,000 — above which a job type would be considered common calling.

Sen. Bill Hickman, R-St. George, suggested that former employees facing extended noncompetition periods should be paid extra for that, during the period itself, although several speakers said tech companies often pay contract signers more, starting when they are employed or when they sign a noncompetition contract.

"I just don't like the idea of employees being held hostage by a company when in 'The American Way' there should be some amount of freedom to go out and seek a better life," Hickman said. "I just think there needs to be some type of consideration in that contract to cover that kind of extended period of time when you are not able to be employed in the marketplaces in a field that you're knowledgeable about."