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Non-competes: A divisive issue in Utah’s tech industry

Non-compete agreements were a hot topic during this year’s legislative session, with Utah’s tech community weighing in on both sides of the issue. In fact, Richard Nelson, CEO of the Utah Tech Council, says he’s never seen the state’s tech industry as divided over a single issue as he saw during the 2016 Legislative Session regarding non-compete agreements.

“Our tech companies felt strongly about this issue. Some wanted to keep non-competes. Startups didn’t want the industry to keep them,” Nelson says.

After 10 revisions and several rounds of debate, with prominent tech leaders like Domo’s Josh James and Overstock’s Jonathan Johnson weighing in, HB 251 passed during the session’s final week. The bill revised non-compete agreements between employers and employees, creating a one-year post-employment restriction amendment. The amendment regulates the use of non-compete employee contracts, restricting both the employer and employee from entering into a non-compete agreement for more than one year after the individual’s employment has ended. The bill also makes it so businesses who legally pursue non-compete agreements must pay all legal fees if they lose the case. The bill applies to all businesses, regardless of employee size.

Both sides weigh in

A non-compete agreement or clause is an agreement between two parties, typically employer and employee, in which the employee agrees not to enter into a trade or similar profession using information learned during employment for a set period of time. Some argue that it benefits the company, which typically puts time and resources into training employees. Proponents say non-competes also serve as a retention tool.

On the other side of the debate, some argue that non-compete agreements put individuals at a competitive disadvantage, as it makes leaving a job more difficult. The end result, they argue, can weaken an entire industry. Many in the tech industry note that California—and thus, Silicon Valley—prohibits non-competes.

Scott Askew, general counsel of SirsiDynix, a Lehi-based company that develops technologies to enhance libraries, is in favor of non-compete agreements. He believes they play an integral role in the business community.

“Non-competes are considered to be an important part of protecting a company’s investment in intellectual property and other assets,” he explains. “Like many industries, we have competitors that would love to have the knowledge we’ve created by investing in our employees. Non-competes encourage businesses to invest in employees and to do business in Utah.”

Askew doesn’t believe this year’s bill necessarily hurts or helps Utah’s tech industry, but he does believe that total elimination of non-compete agreements, which has been discussed in the past, could negatively impact the state’s economy. “Elimination of non-competes would create the image that Utah, like California, is not an employer-friendly state,” he says. “It could have a negative impact on economic growth.”

Brandon Tidwell, managing director of Signal Peak, a venture capital and growth equity firm, is on the other side of the issue. “I think [non-competes] are a drag on the Utah technology industry, which is why I and my partners joined other great technology companies in the state (Domo, Qualtrics and InsideSales) in speaking out in favor of eliminating them.

“As a general rule, we think people should be able to work where they want to, and it is incumbent upon good companies to create an environment where their employees would rather work for them than their competitors,” he says. “Beyond that, experience and academic research has demonstrated time and again that ecosystems where talent is mobile are more dynamic and innovative. The spillover of knowledge and talent into the broader ecosystem is good for everyone.”

Tidwell hopes to see non-competes eventually eliminated from Utah’s business community. “I wish [HB 251] had gone further, but it is an improvement on the status quo,” he says. “I have many friends in the Utah business community that feel differently about this issue, and I am pleased we were able to reach a compromise that at least limits these types of agreements to 12 months.”

Nelson agrees that HB 251 was a solid compromise. “It was a very positive resolution, and it was a good thing for the industry,” he says. “Our industry and others had overreached on putting too many employees under non-compete agreements, so this came as a result. In the end it was a good compromise that we embraced.”

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