On March 9, 2016, Utah enacted the Post-Employment Restrictions Amendments, which limits restrictive covenants to a one-year time period from termination. Any restrictive covenant that is entered into on or after May 10, 2016, for more than one year will be void. Notably, the new law does not provide for a court to blue pencil an agreement, rather the agreement as a whole will be deemed void.
Employers should be wary of enforcing an invalid restrictive covenant. Under the new law, if a court or arbitrator deems a restrictive covenant unenforceable, the employer will be liable for court or arbitration costs, attorney fees, and actual damages.
The new law has carved out several exceptions. It does not apply to (1) a “reasonable severance agreement,” (2) any restrictive covenants stemming from the sale of a business, (3) nonsolicitation agreements, (4) nondisclosure agreements, and (5) confidentiality agreements. However, these exceptions are still subject to common law restrictions.
Going forward, employers should take a close look at their standard non-compete clause and make the appropriate changes to ensure that any non-compete agreements entered into starting May 10, 2016, are in compliance with the new one-year time limit.