Employee noncompete bill stirs hornet's nest in Utah business community
Tom Smart, Deseret News
SALT LAKE CITY — An attempt to legislate the use of noncompete employment contracts in Utah continues to stir up a hornet's nest in the state's business community.
Employers on both sides of the issue pitting those who want to ban them outright against those who see them as essential to survival made their voices heard at lively meetings at the Capitol on Friday. Business leaders say the haven't encountered a more divisive issue.
"This bill started out as a quiet little bill," said House Speaker Greg Hughes, R-Draper. He said the issue came to his attention from a pest control operator whose employer barred him from working for a competitor.
In the past few weeks, HB251 has drawn the wrath and praise of Utah's most successful executives from major industries including technology, health care and transportation. Negotiations over the bill among lawmakers, business leaders, lobbyists and even Gov. Gary Herbert, might well continue until the Legislature adjourns next Thursday at midnight.
The Senate Business and Labor Committee heard pro and con testimony late into the evening Friday before approving with reservation the fifth — but likely not the last — iteration of the bill. The House unanimously passed a different version earlier.
Committee member Sen. Todd Weiler, R-Wood Cross, said if it were the only bill the Legislature had to work on the rest of the session, it couldn't come to a consensus.
Spencer Eccles, former executive director of the Governor's Office of Economic Development, urged legislators to take a breather on the issue.
"We have time to make the right decision," he said earlier Friday. "If we make the wrong decision, the big loser is going to be Utah and that’s going to be all of us."
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, broadcast media and businesses that invest in employee education or training.
Deseret Media Corp., which owns the Deseret News as well as KSL television and KSL radio, in some cases uses noncompete agreements in its broadcast properties.
Rep. Mike Schultz, R-Hooper, set out to ban all noncompete contracts but has since pulled back in hopes of striking a balance between employers and employees.
The bill as it stands now would limit companies' use of noncompete agreements to one year for employees who have proprietary information or trade secrets. In other words, it would protect a company's "secret sauce."
The law would outlaw noncompete contracts for unskilled labor, though the definition of that is subject to debate. It wouldn't prohibit nonsoliciation or confidentiality agreements.
Opponents of the proposed law say it would stifle business expansion and job creation in a state with one of the fastest-growing economies in the country. Supporters argue the measure allows people to have greater control of their own destinies in their chosen profession and fosters innovation.
Josh James, founder and CEO of Domo, rescinded all of his company's noncompete contracts at a Capitol news conference Friday. He said it's a tool company attorneys tell businesses to use, but it started bothering him when he saw how it hurts people, including himself. James said he had to come up $3 million to fight a lawsuit asserting he was competitive.
"I think noncompetes are un-American," he said, adding they make workers "indentured servants." Domo is a cloud-based business management platform for businesses.
James doesn't support the current bill because he said it doesn't go far enough. Truckers, he said, should be allowed to work at any company that they want to.
TJ England begs to differ.
C.R. England, where he works as general counsel, pays for the training of new hires to obtain their commercial drivers' licenses. In exchange, they agree to work for the trucking company for six to nine months, he said. Competitors who haven't made that investment, he said, poach the company's drivers.
England said the bill takes a one-size-fits-all approach and doesn't account for different kinds of noncompete agreements.
"It really prevents a lot of employers from providing actual value," he said. "It treats every employer like they're trying to be a bad actor, and that's really not the case here."
Some argued that the high-tech industry is driving the effort to end noncompete agreements.
"A few companies shouldn't insist on what rules should be in Utah," said Jeff Nelson, CEO of Nelson Laboratories, a microbiological testing company.
Hughes, who is pushing the bill hard, said HB251 is an attempt to clarify and better define what noncompete or restrictive covenant agreements are and how they should be used.
"There is so much abuse going on now, that we should have some standards and clarity in our code that can help people,” he said. Lawsuits over the agreement have ballooned 300 percent since 2000, he said.
Hughes said Utah has to protect it's status as a right-to-work state. If employees are restricted they would fight against the right to work "and that leads to organized labor."
Herbert, who is involved in discussions over the bill, weighed this week, saying that the measure addresses some challenging matters important to the state’s business community.
"It’s a difficult issue because I think there are legitimate concerns on all sides of this issue," he said. "A person that has skills should have the right to go out and sell their skills to the highest bidder."
At the same time, businesses are investing in people and also have legitimate interests, the governor said.
Ryan Smith, founder of Provo-based Qualtrics, a research software company, called it an old school versus new school issue. Millenials, he said, won't put up with restrictions and trying to handcuff them would backfire. He announced Friday that his company is dumping the majority of its noncompete agreements.
"Everyone is an insider," he said. "If we don't get good at developing our talent we don't have a right to be in business."
CHG Healthcare requires all of its empoloyees, including 1,100 in Utah, to sign narrowly tailored noncompete agreements, said Scott Beck, president and CEO. Fortune magazine recognized it as one of the best 100 places to work in America for the seventh consecutive year. He said it invests in its workers to become ambassadors to the company's clients.
"This bill overlooks the importance of protecting business relationships and goodwill," he said.
Beck said Utah's economy is "humming" and disrupting it with the proposed law would cost the state jobs.
Salt Lake Chamber president Lane Beattie said no other issue has generated such a level of concern within the business community in his 12 years on the job.
"In spite of real progress, our meeting this morning underscored that we still have a significant divide on remaining critical issues," he said. The Chamber, he said, is committed to continuing to look for the best approach, "no matter how long that may take."
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