Brice Wallace
Salt Lake Business Journal
A bill that would alter existing law related to noncompete agreements between companies and employees advanced out of a legislative committee but with a promise it would be further refined in the legislative process.
HB203 was advanced to the full House of Representatives from the House Business, Labor and Commerce Committee by a 10-3 vote after the sponsor, Rep. Tyler Clancy, R-Provo, agreed to work with critics to improve the bill.
The changes spelled out in the bill would affect 95 percent of Utah workers, in part from banning noncompete agreements for employees earning less than $155,000.
The Utah Chamber called for further study during the Legislature’s interim period because of its concerns about the bill’s “sweeping negative impacts” on companies and employees.
“Our businesses are growing jobs faster than any state because they have certain protections — the very protections that this bill aims to remove,” said Mary Catherine Perry, executive vice president over public policy and government affairs at the Utah Chamber and Salt Lake Chamber. “Why would businesses want to come to Utah if they know they can’t protect their sales lists, their manufacturing secrets or their training investments? From manufacturing to high-tech to biotech, large business, small business, there’s not a sector that this bill doesn’t touch.”
The bill advanced by the committee would prohibit an employer from enforcing a noncompete agreement (NCA) against independent contractors, students, interns, workers under age 18, nonexempt (low-income workers) and workers laid off by their company. It requires upfront disclosure of NCAs during a job offer, and it provides a right of action for unlawful NCAs.
During the committee meeting, the bill had proponents and opponents, both on the committee and during public testimony, and several people urged more engagement to fine-tune its provisions. Some said NCAs are beneficial to companies and/or employees, while others said they are harmful.
Rep. Jordan Teuscher, R-South Jordan, said he believes some employers use NCAs to keep employees in their jobs and not allow them mobility, which is against free market concepts. While NCAs are a problem that needs to be solved, “I have no idea where the line should be drawn,” he said. He urged more negotiations on the bill, saying his goals are to not hurt companies or state corporate recruitment of companies but also to ensure “we stay the No. 1 state for economic outlook and mobility.”
Rep. Cory Maloy, R-Lehi and committee chairman, said he has been on both sides of the issue as a company official and employee. “Like a lot of people here, I don’t know where the line is and I can see it from both perspectives,” he said. “But it just seems like anytime these [NCAs] are there, it’s causing problems.”
Clancy said NCAs originally were related to protecting company’s insider information, proprietary knowledge, intellectual property and trade secrets, with companies paying employees a premium for an NCA that restricted their movement to other companies or starting their own business. But NCA provisions have been broadened, including applying to workers at retail and food establishments “and places where it doesn’t make sense to put workers under these restrictive NCAs,” he said.
“HB203 seeks to restrict the use of harmful NCAs and make sure that we’re only using them when absolutely necessary,” Clancy said.
He noted that NCAs would not include nonsolicitation, nondisclosure, confidentiality or training repayment agreements.
“We want businesses to thrive,” Clancy said. “We want businesses to invest in their workers and protect their assets that they’ve worked hard to earn. But at the same time, I believe that we can do this in a way that respects worker mobility and we can be more precise. Rather than using the sledgehammer tool, we can use the scalpel.”
The committee meeting included discussion of various scenarios involving NCAs, including those applied to interns, laid-off workers and low-wage workers such as restaurant waitstaff.
Employment lawyer Loren Scholnick said many people sign NCAs unwittingly, but NCAs were supposed to be for workers without negotiating power, such as house cleaners, carpet cleaners, billboard installers and skin spa workers.
“It definitely impacts people’s ability to sell their labor in the most effective and lucrative way they can,” she said. “This bill really gets at the problem of low-wage employees who are never supposed to be, in theory, subjected to such an onerous contractual provision.”
Sam Peak, labor and mobility policy manager at the Economic Innovation Group, said many companies make every employee sign an NCA, locking them into a position even if those employees are without access to valuable company information.
“Rather than protecting valuable trade secrets, noncompetes are most commonly used as a cost-free way of intimidating workers from pursuing better opportunities or launching their own businesses,” Peak said.
Peak and others said more employee freedom would boost the economy and spur entrepreneurship, including for franchisees and independent contractors, by allowing more people to start their own companies and give them the ability to recruit talent to help them grow.
However, Kelvyn Cullimore, CEO of BioUtah, expressed worries that the bill will inhibit economic growth. He called for an interim-session study. “We aren’t opposed to lower-wage [provisions] — we understand that aspect of it — but that does not apply to our industry,” he said, adding that the bill “would be a sledgehammer to a problem that we think doesn’t need that.”
Others said they were concerned about how the bill would disincentivize workforce development.
Rep. Norman Thurston, R-Provo, said the bill would restore worker mobility and said the testifying companies had provided confusing comments about protecting their trade secrets.
“The problem,” he said, “is that what they’re doing is morally wrong, it’s hurting the backbone of our country, and we need to send a strong message that it needs to stop.”