Utah has an unemployment rate of 3.5 percent. Its residents, according to a recent Gallup Poll, are the most positive about their economy of any state in the land. Forbes has chosen the state the best in the nation for business two straight years.
Perhaps Utah’s Speaker of the House can explain why it’s necessary to disrupt this momentum with HB251.
We seldom have seen the sort of unified alarm from the business community that this bill has attracted, from trade associations representing companies small and large to the heads of venture capital firms and some of the state’s oldest business. That alone should be a sign that something is terribly wrong.
HB251 would severely limit a company’s ability to have employees sign non-compete agreements as a condition of employment. These agreements are important for several reasons. They keep employees from taking trade secrets or information about company strategies to competitors. They allow companies to invest in training employees without the worry that a competing company can take advantage of such largesse by luring a trained employee away.
Generally, these agreements include reasonable time limits, after which employees are free to work for whomever they wish.
While legislators are now, finally, meeting with business leaders, and while the exact wording of HB251 is being negotiated, we are puzzled as to why this bill was necessary in the first place. What problem is being solved?
Media reports have included vague reasons involving sandwich restaurant employees being unfairly prohibited from changing jobs for fear they will compromise culinary secrets, which seems like an over-reaction to issues of abuse that can, and have been, largely resolved through judicial interpretation of non-compete clauses.
Meanwhile, we note that Americans for Prosperity, the national political advocacy group, published a statement on its website in favor of HB251.
Americans for Prosperity talks about non-compete agreements hindering employees from starting their own companies or keeping existing companies from recruiting from their competitors. They frame this as a matter of helping employees to provide for their families. Their website talks about helping those people join “other companies seeking to innovate.” But the wanton use of a competitor’s strategies and proprietary information does not equate with innovation.
Indeed, free markets depend upon the ability of individuals and the companies that employ them to contract freely to mutual advantage. It is a highly paternalistic understanding of contract law that seeks to have government, outside of protections against force or fraud, restrict what private parties can include in a contract.
Utah has through the years built a substantial record of case law to help address the nuances and remedy the abuses that could arise from disputes over non-compete agreements. HB251 would wipe this case history aside in four pages.
Many of Utah’s business and investment leaders say this bill would cause companies outside the state to view Utah differently. No longer would the state be viewed as a friendly place to relocate or invest. One company with a corporate charter here worries the bill would affect the non-compete agreements signed by its executives nationwide. Some local businesses may decide to leave Utah in order to protect their trade secrets and preserve a competitive advantage.
This is a lot of potential harm from one small bill that hurriedly passed the House last week by a unanimous vote, absent appropriate and timely vetting by the people who would be most affected.
Utahns have seen too many times how poorly crafted legislation, passed quickly and without public review, leads to problems. One such example involved a rewriting of the state’s open records law in 2011, which led to such widespread protest a special session was needed to repeal the law later that year.
Although the House passed HB251, House leaders now are meeting with business leaders to hear their concerns. Legislators should listen carefully. They need to ask themselves why this bill is necessary and why they should jeopardize Utah’s booming economy to fix a problem no one seems able to articulate.