By: Alex B. Leeman, Employment and Litigation Attorney
June 20th, 2017
(Part 2 of a 5-Part Series)
In Part 1 of this series, I explained that Utah courts will enforce Restrictive Covenants (like non-compete agreements, non-solicitation agreements, no-hire clauses, and similar provisions), as long as they are written to protect the employer’s “blood, sweat, and tears”—its innovation, investment, goodwill, etc. However, a court will not allow an employer to simply stifle competition in the open marketplace.
Against that backdrop, we next ask: “Who can be restricted by a non-compete agreement?”
To answer this question, an employer must be able to explain why a particular employee must be restricted to protect the employer’s legitimate interests. Several Utah cases hold that restrictive covenants must be limited to employees who are “special, unique or extraordinary”—those with access to the employer’s confidential information and know-how, or responsible for building and nurturing goodwill with the employer’s customers, or specially trained by the employer. So-called “common” employees cannot be restricted.
To illustrate the concept, imagine you own a local ice cream company that sells your famous “Beehive Butterscotch” ice cream in local grocery stores. Your head glacier who mixes each batch and knows the secret “Beehive Butterscotch” recipe could likely be restricted by a non-compete. You would have little trouble explaining to a judge that your “blood, sweat, and tears” would be at risk if this employee took his know-how to a competitor across town. Similarly, you may be able to restrict the employee who negotiates your contracts and maintains the company’s relationships with the local grocers who carry your product, or the local farmers that supply your operation.
Could you restrict the truck driver that delivers ice cream around town each week?
Probably not. This employee likely has no special knowledge about your company, no special relationships with your customers, and no special or extraordinary training. It would be difficult to convince a judge that a competitor would obtain an unfair advantage from hiring your delivery driver.
When writing a non-compete agreement (or other Restrictive Covenant), ask: Does the employee need to be restricted to protect the employer’s confidential information and know-how, goodwill, or extraordinary investment in training/education of the employee? Did the employee have a unique role in the company that made him or her privy to the employer’s “secret recipe” of success? If the answer is yes, you have cleared the first hurdle on the path to drafting an enforceable Restrictive Covenant.
Alex B. Leeman is a shareholder in Prince Yeates’s commercial litigation section where he assists Utah business of all sizes with their legal needs. Mr. Leeman has experience with a range of employment-related matters.