Confused at the Employment Law Updates? Holland & Hart Clarifies

Salt Lake City—When the subject of non-competes came forward in the legislative session this year, it elicited much passionate debate on either side. Some employers may still be confused about what was approved in the final version of HB 251—and that’s what Holland & Hart set out to clarify at a breakfast meeting with local employers Wednesday morning. Bryan Benard, employment partner at Holland & Hart, led the meeting, discussing Utah’s new employment laws, including HB 251, the pregnancy accommodation bill, changes to discrimination damages and suggestions for improving employee handbooks.

HB 251: The Non-Compete Bill

HB 251 is a post-employment restrictions bill introduced in House by Representative Mike Schultz, which was backed by Speaker Greg Hughes, and in the Senate by Senator J. Stuart Adams. Initially, the bill would have prohibited all post-employment non-competes and restrictions.

“The first version of the bill was to entirely ban non-competes. Entirely!” said Benard. “That’s a bold change in the law.”

The authors and proponents the bill had three main general arguments, said Benard, that drove them to bring forth and support the bill. The first was that they believed situations such as the “Jimmy Johns example”, where delivery employees were asked to sign non-competes, are absurd in that those employees have no bearing on the businesses’ well-being.

“How much less part of the grand scheme and thought process can you get than the guy who is hopping on his bike and driving down two blocks?” said Benard. “In their mind, that was outrageous that you would have someone like that—a 20-something-year-old college student—signing a non-compete.”

There was also the argument that people should be able to be employed in the only trade that they know, as well as the “Silicon Valley argument”, which states that Silicon Valley—which has no non-competes—is thriving as a hub of innovation and business.

“In the startup world, there’s some literature out there that you can compare Massachusetts to Silicon Valley. All of the thought process and think tank and growth and startups are in California now, where there’s free movement of employees,” said Benard. “Those were the three areas that drove them to bring forth this bill.”

HB 251 went through 10 revisions and a flurry of impassioned arguments from both sides of the table. Entities like the Chamber and the Utah Technology Council both had people fighting on both sides, and had extreme difficulties taking an official side, said Benard.

“Primarily, employers ended up on the other side of this,” he said. “[They thought], hold on—we can’t have our best employees leaving that have proprietary and confidential information and trade secrets and everything else, and taking our process and our company, and setting up shop across the street.”

The version that passed in the house was version three—but the final version of HB 251 was version 10.

“It actually doesn’t do a lot compared to where we were talking before,” Benard said. “It’s certainly not a ban on non-competes.”

HB 251 applies to all agreements entered into on or after May 10, 2016. The biggest change is that non-competes are now limited to one year. This does not apply to the sale of a business, and does not apply to non-solicitation provisions, confidentiality and non-disclosure restrictions. It also permits reasonable severance agreements that include post-employment restrictions—if entered at the time of termination.

“Every executive employment contract that you sign that provides for severance almost invariably has employment restrictions attached to it,” said Benard. “The problem that I still have with it is … this language here, ‘if entered at time of termination.’ That language is problematic. When do you enter an executive employment contract? The start of employment.”

If the agreement is found to be unenforceable, the employer is liable for the employee’s costs, attorney’s fees and actual damages.

Benard said that the legislature will have more to do on the subject of non-competes in the future. He said he expects topics like goodwill, adequate consideration and/or additional compensation for employees signing non-competes, common calling and applicability tied to exempt/non-exempt status employees (i.e. what do to with those Jimmy Johns employees), geographic markets/scope/areas, confidential and proprietary information and processes, and limits on non-solicitation agreements will all be discussed, weighed and brought up.

“[The bill’s proponents] were very clear that they did not feel that this was the end,” said Benard. He suggested that businesses take steps to review and revise their agreements and policies, draft executive contracts which include severance, and consider or ensure that all have a release agreement signed at the time of termination.

SB 59: The Pregnancy Accommodation Bill

Also effective May 10 is an addition to the Utah Antidiscrimination Act that adds a new protective category under the Americans with Disabilities Act (ADA). Employers may not refuse to provide reasonable accommodations for an employee related to pregnancy, childbirth, breastfeeding or related conditions if requested—unless the accommodation creates an undue hardship on operations.

The analysis of ‘undue hardship’ is similar to the ADA and quite hard to prove, said Benard. It would take a very small employer or a well-defined department where that employee is the only employee doing that job. If that employee needed four or six months of bed rest and is the only employee functioning in that small unit or for that small employer, Benard said, it could qualify as undue hardship for the company.

“The expense only comes in with very small employers,” said Benard. “Anyone with 50 employees or more, I have not seen the undue hardship on financial grounds met by a medium- to large-size employer. It just doesn’t happen under the ADA and I think it’s going to be the same standard here.”

Employers may require medical certification concerning the medical advisability of an employee’s reasonable accommodation, said Benard. The certification must state the date the reasonable accommodation becomes medically necessary, its probable duration and the explanatory statement as to the medical advisability of the reasonable accommodation. Employees may not require medical certification for the pregnant or breastfeeding employee taking more frequent restroom, food or water breaks.

Employers are also not required to permit an employee to have their child at the workplace.

Lastly, employers must include written notice concerning employees’ rights to reasonable accommodations for pregnancy, childbirth, breastfeeding or related conditions in their employee handbook or posted in a conspicuous place.

SB 185: Discrimination Damages

SB 185 amends the Utah Antidiscrimination Act. In Utah, a discrimination claim is filed as a charge with the Utah Labor Commission, which investigates it, addresses it and comes out with a determination (which can be appealed). This bill allows the potential to double the back pay damages.

“So, we fire someone. It’s illegal. They’re out of work for six months. We’re ordered to pay a back pay of six months,” said Benard. “Now, the Labor Commission can double that to one year.”

The bill also requires the Division of Antidiscrimination and Labor to advise and report to the legislature on the effectiveness of addressing compensation discrimination.

“The weird part of this bill is that it’s really designed more to pay discrepancies based on gender, but [the back pay damages] provision applies to everything,” Benard said. “They can double the damages, basically, which is pretty big. It looks like it’s designed to be awarded unless the employer shows that this was done in good faith and they had a good faith basis for implementing whatever practice this was. Thankfully, it’s discretionary and it gives us the ability to show that we were acting in good faith or that we reasonably believed that this was an appropriate decision that we made.”

Employee Handbooks

A new court of appeals case, Reynolds v. Gentry Finance Corp, came out in February, where an at-will employee alleged that they were being forced to make illegal or improper phone calls. The employee made their manager aware of this fact, and although the employee handbook said that no retaliation would occur to the employee, they were terminated two weeks later.

“The claim becomes, ‘your handbook said you would not retaliate against me. That was a contractual requirement, and you broke that contract by retaliating against me,’” said Benard. “The court found in this case that the employee had sufficiently alleged an implied-in-fact contract.”

Although the manual stated it required employees to report wrongdoing and included numerous statements regarding retaliation, it also had at least four references to at-will employment and contained a disclaimer that the handbook was not a contract. However, the assurances regarding retaliation were bolded and italicized, leading the employee—and the court—to believe that it was more memorable and important.

“Our view of this case is that it’s come down to ‘what’s more conspicuous?’ said Benard. “What’s offset in a different font? You’ve got to be careful. We all want and need to have those no-retaliation provisions. We can’t make them more numerous or conspicuous, etc. than the at-will acknowledgement.”