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Lawmakers split on noncompete bill but push it forward

This Jan. 22, 2018, photo shows Republican state Rep. Mike Schultz, of Hooper, on the house floor at the Utah State Capitol in Salt Lake City. Schultz, who tried to prohibit Utah employers from using noncompete contracts two years ago, is back with a bill
This Jan. 22, 2018, photo shows Republican state Rep. Mike Schultz, of Hooper, on the house floor at the Utah State Capitol in Salt Lake City. Schultz, who tried to prohibit Utah employers from using noncompete contracts two years ago, is back with a bill aimed at banning those agreements only for media outlets.
Rick Bowmer, Associated Press

SALT LAKE CITY — A state lawmaker who tried to prohibit Utah employers from using noncompete contracts two years ago is back with a bill aimed at banning those agreements — but only for media outlets.

Rep. Mike Schultz, R-Hooper, stirred up a hornet's nest in the business community with his 2016 proposal that passed in a watered down form after intense behind-the-scenes negotiations and 10 iterations. It bans noncompete contracts that are more than one year long for all employers.

The new proposal, HB241, "prohibits an employer and an employee from entering into a post-employment restrictive covenant if the employer's primary business is news media." No other industries are listed in the legislation.

News media means a printed, photographic, electromagnetic or electronic means of disseminating news to the general public. It includes a newspaper, magazine, press association, news agency, wire service, radio station, TV station and TV network.

Schultz said it's a matter of fairness because noncompete agreements can put a strain on families and employees who are out work whether they quit or were laid off or fired.

"I think it goes against what the free market is. I think it’s anti-American, it’s anti the American dream," he said in an interview.

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 common among technology companies, broadcast media and businesses that invest in employee education or training and in the case of media, promotion. It also promotes the use of contracts, which can provide stability and protection to employees and their families as companies invest in them, industry representatives said.

Utah's major television stations — KSL, KUTV, KTVX and KSTU — lined up to oppose the bill at a House Business and Labor Committee hearing Thursday. They said they put many thousands of dollars into developing and promoting the on-air people who viewers invite into their living rooms.

"Going down this path of noncompetes in the extreme makes chattels of employees. They become no more than widgets for which you pay for certain period of time and then they can be gone," said Keith McMullin, president of CEO of Deseret Management Corporation, which owns Bonneville International Corporation, KSL, Deseret Digital Media and the Deseret News. The company in some cases uses noncompete agreements in its TV and radio properties.

McMullin said in allowing companies and employees to reach agreements to their mutual best interest, they are serving the state in a much better way.

After two hours of testimony from TV executives and current and former on-air personalities, the committee voted 8-5 to pass the bill to the House floor with a favorable recommendation.

"If there's anything that makes it sound like you're treating an employee like chattel, it's when you're trying to lock up their talents or their likeness or their personality and keep them from gainful employment simply because you've invested in them," said Rep. Timothy Hawkes, R-Centerville.

Rep. Curt Webb, R-Logan, voted against the bill, saying it's too sweeping and its wording is "draconian."

Schultz said he would continue to massage the bill that he expects "at every point there will be substitutes" as it works its way through the process.

Former KUTV and KSL consumer reporter Bill Gephardt testified that he has heard from dozens of "miserably treated" media employees with noncompete agreements. He said he couldn't reveal their names because they fear retribution.

"Noncompete clauses have become perverted," he said.

KUTV general manager Kent Crawford said the station spends thousands and thousands of dollars promoting reporters like Gephardt and the recently retired Rod Decker. He said a TV station's assets are its people.

"When Bill Gephardt came to town, nobody knew who Bill Gephardt was, he said.

Crawford said he would have hated to see Decker walk across the street with two weeks notice after 40 years of investment. "The investment is far too great," he said.

Schultz, who is searching for a Senate sponsor for the bill, said he didn't talk to any media outlets before drafting the legislation.

The current law is working "fairly well," but his inbox is full of "horror stories" about companies abusing noncompete contracts, he said. Schultz said he singled out the media because he wants to target abuses that he sees occurring in general.

"If you're part of the media, how can you fairly report on some of the abuses that happened with noncompetes, if you're under a noncompete?" Schultz said.

Schultz said he understands TV stations invest to promote news anchors, for example, but that the anchors also bring their talent to the job. He said rather than noncompete contracts, the station should negotiate an agreement that pays the anchor to stay on the sidelines if a station doesn't want them working for a competitor for a certain amount of time.

Alan Sullivan, an attorney representing Deseret Management, said the proposed law could be unconstitutional because it arbitrarily treats news media different than other professions such as health care, high tech and retail that routinely use noncompete agreements.

"We're not aware of any abuses in the news media that couldn't be shared in other industries as well," he told the committee.

Sullivan noted that eight states have passed similar laws to the one Schultz is proposing, but that nine state legislatures have rejected such measures.

Hawkes said the proposed law singles out the media because it has a unique role in society and noncompetes keep reporters out of the market if they want to change jobs.

"We can't have media voices silenced," he said.

In the heat of the debate over the issue two years ago, Provo-based Qualtrics founder Ryan Smith announced his company was dumping the majority of its noncompete agreements.

"It's hard to make these blanket laws. … The more specific anything can be, the better. The issue is really difficult because you've got big challenges with it. Every case is different and every competitive market is different," Smith said in an interview.

Noncompete agreements are going away in Silicon Valley because of all the lawsuits they bring, he said.

The reality is now there's a free space to work and companies want people to be able to move around and do great things, Smith said. But there are noncompete contracts in place because sometimes people have been working at one place and take a customer list or source code with them when the leave, he said.

House Speaker Greg Hughes, R-Draper, who pushed hard for the 2016 bill, said that while tech companies base noncompete contracts on protecting proprietary information, media companies base them on "goodwill." He compared it a well-regarded law firm enhancing the value of a lawyer and vice versa. Lawyers are exempt from noncompete agreements.

Hughes said he doesn't see a difference between lawyers and reporters.

"It’s this open-ended term of goodwill that is the hardest to understand and where we see it the most and understand it the least would probably be in this area of the media," he said.

The Salt Lake Chamber, which weighed in heavily on the issue two years ago, is staying out of it this time because the bill is specific to one industry, said spokeswoman Kimberly Flores.

Contributing: Art Raymond