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Senator unveils stripped down bill regulating noncompete contracts

Josh James, founder and CEO of Domo, and others announce their support for HB251, which would legislate the use of noncompete employment contracts in Utah, at the Capitol in Salt Lake City on Friday, March 4, 2016.
Josh James, founder and CEO of Domo, and others announce their support for HB251, which would legislate the use of noncompete employment contracts in Utah, at the Capitol in Salt Lake City on Friday, March 4, 2016.
Deseret News

SALT LAKE CITY — A drastically dialed back version of a controversial bill to regulate noncompete employment agreements in Utah emerged on the Senate floor Tuesday.

The eighth substitute of HB251 does not ban noncompete contracts but restricts an employer or employee from entering into one for more than one year, whatever the reason.

In addition, if a company seeks to enforce the restrictive covenants in court or arbitration and loses, it would have to pay court costs, attorneys fees and damages. The bill would only apply to businesses with 20 or more employees.

The Senate voted 22-6 to move the bill to a final vote Wednesday, though several senators signaled their votes were tentative. If it passes, it would return to the House for consideration.

Senate Majority Whip Stuart Adams, R-Layton, said noncompete agreements longer than one year are cumbersome for employees.

"What we've set up here is a way to self-govern," he said. "If you put a penalty provision in place, you're going to deal with some of those employers that are acting improperly."

The legislation came as result of difficult negotiations with business leaders, attorneys and legislators, Adams said.

Salt Lake Chamber President Lane Beattie called the latest proposal a "breakthrough" that the chamber could support.

"The latest version of HB251 preserves noncompete agreements, while placing reasonable restrictions to safeguard employers and employees. This bill limits noncompete agreements to one year but eliminates all the other proposed restrictions from previous versions of the bill," he said.

Beattie called it a positive development, though he said he understands that some businesses will continue to have concerns.

House Speaker Greg Hughes, R-Draper, who is pushing legislation on the issue, said employers are abusing the use of noncompete agreements and the Legislature needs to set standards, which don't exist now in Utah law.

Noncompete contracts prevent employees from going to work for a competitor or start a similar business for a prescribed period of time. Those restrictive covenants are popular among technology companies wanting to protect intellectual property, broadcast media and businesses that invest in employee education or training.

Deseret Media Corp., which owns the Deseret News as well as KSL-TV and KSL Newsradio, in some cases uses noncompete agreements in its broadcast properties.

Past drafts of the bill have drawn praise and wrath of Utah's most successful executives from major industries, including technology, health care and transportation. Small-business owners say the proposal caught them off guard because it came late in the legislative session that ends Thursday.

High-tech companies such as Domo, Qualtrics and insidesales.com advocate doing away with noncompete agreements for a vast majority, if not all, workers. Many other industries say being able to keep employees who they train and invest in is essential to staying in business.

Some business leaders asked lawmakers to hold off on trying to push a bill through in the waning days of the session.

Email: romboy@deseretnews.com

Twitter: dennisromboy