SALT LAKE CITY — Local business leaders are collaborating to oppose changes to a state law targeting use of noncompete language in employment contracts.
According to founding member Matthew Browning, Free Enterprise Utah's goal is to unite businesses against government interference and overregulation. Browning is chief operating officer of Snap Finance.
“Let me be clear, this is not about a political fight; this is about something much more important,” he said. “This is about standing up for a fundamental right for employees and businesses to define their relationship without the overreaching hand of government.”
He said the group is taking action to prevent any adverse changes to noncompete law — specifically House Bill 81 — in the 2017 legislative session and creating a final resolution of noncompete issues in the state. Last year, many of the same business people voiced similar concern regarding House Bill 251 Post-Employment Restrictions Amendments.
Then and now, critics expressed fear bills like House Bill 81 Post-Employment Restrictive Covenant would stifle expansion in several of the state’s fastest growing industries, including technology, biotech, health care, transportation and media, among others. Additionally, they question whether the measure would receive adequate review within the legislative process by members of the business community that would be most affected.
Supporters of the new measure contend it tries to achieve a “free market approach” that would allow individuals to have greater control of their own employment destinies.
But Browning said much of Utah’s economic success could be traced to a willingness for government to work with the private sector to avoid creating unnecessary, burdensome regulation. The proposed measure would potentially damage that framework, he said.
Last year, a compromise proposal was reached that would preclude employees from leaving a company and working for a direct competitor for 12 months, he said. The latest incarnation of the bill could jeopardize the progress that was made during the previous legislative session, he noted.
“It’s not just about business; it’s about employees because employees are our most important asset,” he said.
For years, restrictive covenants have been popular particularly among high-tech companies and broadcast media.
Browning said noncompete agreements protect both a company and its employees from those who would move to a direct competitor, taking their contacts, training and insight into the culture of the company with them. Such agreements are for a limited amount of time and do not prevent workers from continuing to work and advance in their field, he said.
Noncompete clauses are also used to prevent workers from gaining a competitive advantage by exploiting confidential information to start a new company.
Nationally, most states recognize and enforce various forms of noncompete agreements, with only a few states, like California, banning noncompete agreements except in limited circumstances.
In evaluating the new proposal over last year’s, Westminster College business law professor Emily Rains was “hard-pressed” to figure out how permitting a noncompete statute would protect company information in the way argued by supporters in the business community.
“I don’t feel like the final legislation protects our citizens,” she said. She mentioned the Unfair Competition Act, which should adequately shield companies from being taken advantage of, already protects businesses from theft of trade secrets, intellectual property and other proprietary information.
Adding HB81 would only serve to “chill” labor or employment rather than prevent unfair competition, she said.
“Good business can be done using fair practices,” Rains said. “Historically, restrictive covenants have (not) been used fairly in the marketplace.”
HB81 is awaiting a vote by the full House.