Utah Non-Compete Agreement Research February 24, 2017
Cicero conducts research for myriad organizations around the world.
350
EMPLOYEES
EXECUTING RESEARCH ACROSS
47 COUNTRIES
ENGAGEMENTS SPANNING
14 LANGUAGES
GEOGRAPHIC OFFICES AROUND THE WORLD
DATA-DRIVEN
STRATEGY
CONSULTING
2
Project Team Chad Berbert
Michael Jensen
Principal Project Lead
Experience: • U.S. Chargé d’Affaires (Acting Ambassador), Samoa •
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•
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Special Assistant to U.S. Assistant Secretary of State MBA, University of Pennsylvania Wharton School MA, International Studies, University of Pennsylvania
Rong Mo
Engagement Manager
Kevin Duncan
Analyst
Analyst
Experience: • Director of Marketing, InsideOut
Experience: • Analyst, Boston Consulting Group
Experience: • Analyst, Goldman Sachs
•
Partner, Laurus Products
•
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Research Associate, Strata Policy
•
Vice President, xClosure
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BS, Finance & Economics, Utah State University
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MS Predictive Analytics, Northwestern University BS, Economics, University of Utah
Analyst, Morgan Stanley Huaxin Securities; Citi
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MS, Finance, Washington University in St. Louis
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BS, Finance, Shanghai International Studies University
BA, International Relations, Stanford University 3
Table of Contents
Page
5
Objectives
6
Methodology
11
Current State of Non-Compete Agreements in Utah
23
Awareness and Understanding of Non-Compete Agreements and Utah Law
28
Non-Compete Agreement Preferences
41
Current Practices
55
Effects of H.B. 251
62
Focus Group and In-Depth Interview Insights
4
The goal of this research is to discover employer and employee perspective with regards to non-compete agreements. Challenge: Obtain objective, timely, and actionable data to inform policymakers and business leaders alike on the impact of legislation regarding non-compete agreements, particularly in light of the passage of H.B. 251 in 2016.
Objectives • Determine key issues related to non-compete agreements • Identify how employer-employee non-compete agreements are used in Utah • Discover how Utah employers and employees are affected by H.B. 251 legislation • Determine how Utah’s non-compete agreement laws influence non-Utah based companies ultimate decision whether to relocate to Utah or elsewhere • Determine whether additional revisions to H.B. 251 are necessary or would be supported
Methodology 1. Quantitative Research: • Randomized surveys distributed to a representative sample of employers and employees in Utah • Solicited both employer and employee perspectives on non-compete agreements 2. Focus Groups and In-Depth Interviews: • Conducted multiple Focus Groups of employer and employee representatives, capital investors and labor attorneys • Gathered qualitative perspective of stakeholders affected by non-compete agreement legislation 3. Interviews with companies considering locating to Utah: • Interviewed representatives of companies who have investigated moving to Utah in the last 12 months • Explored effects of non-compete agreement legislation on location decision-making
The Outcome: A comprehensive research analysis on non-compete legislation in Utah, informing the State on market forces, employer and employee perspectives, and potential effects of non-compete legislation. *A note on the report: Both quantitative and qualitative data are used throughout the report. Quantitative data provides perspective on how widely opinions are felt. Qualitative information is anecdotal in nature and provides additional context and perspective in research efforts. 5
Quantitative Research Methodology • 1
Designed, programmed, and fielded a 15-minute survey • Gathered 937 responses from employer representatives that have key HR decision making authority (business associations throughout Utah aided in recruiting employers for this study) • Gathered 2,000 responses from individual employees working in Utah private companies • Survey questions were developed by Cicero Group in conjunction with two employment law lawyers who donated their time, Jaqualin Friend Peterson (employee-side) and Bryan K. Benard of Holland & Hart LLP (employer-side)
Quantitative Research
• Input was then sought from each legislator, the business community, and the public, with all comments and suggestions reviewed, discussed, and addressed through several revisions to the study questions
•
Gathered key information across company size (adhering to international size classifications, with additional stratification for small- and medium-sized companies)
“Employee” Qualifications
“Employer” Qualifications
Work in a competitive, for-profit company
General responsibilities for hiring and retention
Must be competitive, for-profit company
Broad variety across industries, company sizes, demographic sets, and job functions
Must have employees
Broad variety from several industries, company sizes, demographic sets, and job functions
Employer Distribution Lists Salt Lake City Chamber Sandy Chamber St George Chamber
Vernal Chamber
UVU Chamber
BioUtah*
Utah Technology Council Utah Manufacturers Association
Payson & Santaquin Chamber
Cache Chamber
Richfield Chamber
ABC Utah
*Did not provide full member list
Employers Council
Davis Chamber
Utah Business License Ogden/Weber Chamber
Associated General Contractors
6
Organizations across the state were invited to participate in the research.
Organizations Invited to Participate Utah Association for Corporate Growth Cedar City Chamber of Commerce Escalante/Boulder Chamber of Commerce Richfield Area Chamber of Commerce Utah Hispanic Chamber of Commerce Bear Lake Rendezvouz Chamber Magna Chamber of Commerce Washington Area Chamber of Commerce Spanish Fork Salem Area Chamber of Commerce Pacific Islander Chamber of Commerce
UBA
VentureCapital.org
ACEC Utah
African Chamber of Commerce
Bear River Valley Chamber of Commerce
Carbon County Chamber of Commerce
Draper Area Chamber of Commerce
Duchesne County Chamber Emery County Chamber of of Commerce Commerce
Holladay Chamber of Commerce
Hurricane Valley Chamber of Commerce
Pleasant Grove-Lindon Chamber of Commerce
West Jordan Chamber of Commerce
World Trade Center Utah
Murray Area Chamber of Commerce
South Salt Lake Chamber of Commerce
Park City Chamber of Commerce
Chamber West
Box Elder Chamber of Commerce
Heber Valley Chamber of Commerce
Kanab Area Chamber of Commerce
Salina Chamber of Commerce
Southwest Valley Chamber of Commerce
Springville-Mapleton Chamber of Commerce
Utah Black Chamber of Commerce
Marysvale Chamber of Commerce
Latin American Chamber of Commerce
Delta Area Chamber of Commerce
Utah Gay and Lesbian Chamber of Commerce
Wayne County Business Association
Beehive Startup
USTAR
Flaming Gorge Chamber of Commerce
Utah Asian Chamber
Parowan Chamber of Commerce
Utah African American Chamber of Commerce
American Fork Chamber of Commerce
Grow Utah
MountainWest Capital Network Lehi Chamber Fillmore Area Chamber of Commerce Tooele County Chamber of Commerce South Jordan Chamber of Commerce Beaver Valley Chamber of Commerce Panguitch Chamber of Commerce Utah Valley Hispanic Chamber Blanding Chamber of Commerce Brian Head Chamber Moab Chamber of Commerce
7
Focus Group and In-Depth Interview Methodology • 2
Conducted Focus Groups with the following sub-segments: • Employers
• Supportive of increased restrictions of non-compete agreements (NCAs): 2 groups • Opposed to increased restrictions of NCAs: 2 groups • Employees
• Supportive of increased restrictions of NCAs: 2 groups • Opposed to increased restriction of NCAs: 2 groups
Focus Groups and In-Depth Interviews
• Other Stakeholders
• Labor and employment attorneys with experience in NCA cases: 1 group • Capital investors with investments in Utah companies: 1 group
•
Conducted in-depth interviews (IDIs) with: • Investment firms that invest in Utah Companies, including
• Venture Capital • Private Equity
•
Gathered detailed information on perceptions, objectives, and uses of NCAs
8
Perspective of companies considering relocation to or expansion within Utah were also gathered as part of the research.
3
•
Conducted in-depth interviews (IDIs) with: • Key decision makers (e.g., VP HR, C-Suite executives, etc.) at companies that are currently located, have considered, or are currently considering locating to Utah
•
These interviews provided: • Understanding as to motivations for investigating a move to Utah
In-Depth Interviews
• Awareness of the non-compete agreement landscape in Utah • Perspective on non-compete agreements generally • Insight into the importance of perspectives on non-compete agreements on ultimate decisions to locate in Utah or elsewhere
•
Utah Governors Office of Economic Development (GOED) recommended and helped recruit participants
Interview Count: Industry
Senior Executives
Industry
Senior Executives
Financial Services
1
Life Sciences
1
Emergency Technology
1
Pharmaceutical
1
Aerospace & Defense
1
Logistics
1
Real Estate
1
Technology
1
9
The non-compete agreement research study has involved exhaustive, inclusive, and collaborative efforts to provide extensive input into the research process.
4
•
The non-compete agreement research study has been funded and sponsored by a joint collaboration (50/50) between the Utah State Legislature and private sector donations
•
As part of the study, Cicero Group facilitated the following forums to solicit input and feedback on the study: •
Business Community Open-Houses
• Conducted 3 business member open houses, hosted by the Salt Lake Chamber to gather feedback and input on research methodology and questionnaire design
Collaborative Input
•
4 Rounds of Survey Feedback
• Solicited broad-based feedback from hundreds within the business community on specific survey text and questions • Feedback was received from 28 individuals and organizations. Over 90% of the specific recommendations were incorporated into the study. • Employee and Employer advocates from the Utah State Bar Association volunteered over 40 hours of focused input on survey question wording to increase the survey clarity and objectivity. •
3 Legislature Presentations
• The research methodology and questionnaire text were presented to both Houses of the Utah State Legislature • Feedback was solicited from all members of the Legislature
1
Current State of Non-Compete Agreements in Utah
1
17.85% of all employee respondents say they have signed a non-compete agreement (NCA) with their current employer.
35%
86%
Or 692 Utah employee survey respondents have been asked to sign an NCA at some point in time in their career
Or 595, have signed an NCA in Utah at some point in time in their career
60% Or 357, have signed an NCA with their current employer
% Employees Who Signed Non-Compete Agreement in Utah
% Employees Asked to Sign Employment Agreements
55%
15%
Non-solicitation agreement
None of the above
n= 595
86%
Current employer
60%
35%
Non-compete agreement
Don’t know
Yes
Of all employee respondents have an NCA with their current employer today
% Employees with NonCompete Agreements by Employer Type
n= 692
n= 2000
Confidentiality / non-disclosure agreement
17.85%
No
11%
Previous employer different industry
43%
5% 29%
Don’t Know
3%
Employee: 4-1 Which of the following types of agreements have you been asked to sign by an employer? Employee: 4-2 Have you ever signed an employment non-compete agreement in Utah? Employee 4-3 With which of the following employers have you signed a non-compete agreement?
Previous employer same industry
29%
1
40% of employers say they require at least some portion of their workforce to sign a non-compete agreement as a condition of employment.
49%
40 %
82%
Or 455 Utah employers ask at least some of their employees to sign a non-compete agreement
Or 374 Utah employers require the NCA to be signed as a condition of employment by some of their employees
% Employers Requiring Signed Non-Compete Agreements
% Employers Asking Employees to Sign Employment Agreements
n= 692
n= 926
Non-solicitation agreement
68%
Non-compete agreement
None of the above
Yes
82%
49%
Confidentiality/ Non-disclosure agreement Don’t know
Of all employers require noncompete agreements from some of their employees
38%
No
17%
1% 25%
Don’t Know 1%
Employer 4-1 - Which of the following types of agreements does your company ask employees to sign? Employer 4-2 - In cases where your company asks employees to sign a non-compete agreement, is the signing of such an agreement a requirement for employment?
1
Non-compete agreements are signed in virtually every industry. Non-Compete Agreements by Industry
Employer
% Selected Management
Employer
Employee
n= 46
n= 16
n= 16
n= 243
60%
n= 6
n= 76
58%
n= 45
n= 168
n= 96
n= 145
n= 23
n= 331
n= 60
n= 22
n= 63
n= 157
n= 117
n= 103
35%
n= 11
n= 113
33%
n= 123
n= 21
n= 12
n= 54
n= 121
n= 112
21%
n= 31
n= 12
20%
n= 69
n= 37
n= 21
n= 156
n= 14
n= 117
n= 5
n= 28
n= 17
n= 2
73%
13%
Information & Technology Administrative and Support
69%
8%
Services
25%
Finance or Insurance
22%
54%
15%
Wholesale Trade
48%
4%
44%
18%
Mining 17%
Educational Services
13%
Agriculture, Forestry, Fishing and Hunting 0% Real Estate 9%
Accommodation or Food Services
Waste Management 0%
42%
29%
Arts, Entertainment, or Recreation
Utilities
51%
27%
Construction
Retail Trade
53%
32%
Manufacturing Transportation and Warehousing
69%
33%
Health Care or Social Assistance
4%
38%
29% 19% 25%
10%
Employee
22%
Employee 1-4 In what industry do you currently work? Employee 4-3 With which of the following employers have you signed a non-compete agreement? Employer 1-8 What is the primary industry in which your company operates? Employer 4-1 Which of the following types of agreements does your company ask employees to sign?
1
Some employers ask all employees to sign non-compete agreements. The largest concentration are in sales, executive, and professional roles. Non-Compete Agreements by Role
Employer
n= 937
% Selected 20%
Hourly - Non-Management 11%
Employee
Employer
Employee
n= 937
n= 758
23% 21% Salary - Non-Management 22% 15%
n= 257
Hourly - Mid-Level Management
n= 216
Salary - Mid-Level Management 23%
n= 297
28% 25%
16% 32%
Hourly - Professional 26% Role 32%
35% Salary - Professional Role
n= 120 n= 253
35%
Sales Role
n= 63
Senior executive positions 30%
n= 9
22%
37%
31% “C�-level executives 17% Any employee which has received significant investment
Any employee that has access to proprietary information All employees Employee 1-5 Which of the following best describes your current role at your job? Employee 4-3 With which of the following employers have you signed a non-compete agreement? Employer 4-4 Which of the following best describes the nature of the positions for which your company asks employees to sign non-compete agreements? Employer 4-1 Which of the following types of agreements does your company ask employees to sign?
1
Companies with larger numbers of employees are more likely to ask some of their employees to sign a non-compete agreement. Non-Compete Agreements by Firm Size
Employer
% Selected 2-9 Employees
38% 14%
16%
Employee
n= 239
n= 211
n= 154
n= 189
n= 162
n= 271
n= 130
n= 275
n= 107
n= 336
n= 56
n= 286
n= 33
n= 123
n= 30
n= 114
n= 15
n= 195
51%
20-49 Employees
24% 55%
50-99 Employees
20% 51%
100-249 Employees
21% 64%
250-499 Employees
19% 79%
500-999 Employees
2,500 or more Employees
Employer
43%
10-19 Employees
1,000-2,499 Employees
Employee
18% 57% 13% 73% 9%
Employee 1-3 How many Utah-based employees does the company you work for employ? Employee 4-3 With which of the following employers have you signed a non-compete agreement? Employer 1-7 How many Utah-based employees does your company employ? Employer 4-1 Which of the following types of agreements does your company ask employees to sign?
1
Employees in each occupation category are asked to sign a on-compete agreement. Non-Compete Agreements by Employee Occupation % Selected Computer, Mathematical
38%
Human Resources
29%
Legal Occupation
25%
Employee n= 166 n= 34 n= 12
Protective Services
22%
Production Occupations
22%
n= 9
Architecture, Engineering
22%
n= 60
Sales, Related
21%
n= 65
Management
19%
Grounds Maintenance
18%
n= 180
Personal Care, Services
17%
n= 151
Customer Service/Client Relations
16%
n= 11
Business, Financial, Accounting
14%
Healthcare Support
14%
Construction, Extraction
14%
n= 173
Food Prep, Serving
13%
n= 175
Education, Training
13%
Physical Sciences
13%
n= 176
Installation, Repairs
12%
Physician, Technical
12%
n= 75
Office Support
10%
n= 101
Community, Social Services
10%
n= 8
Transportation
6%
Social Sciences
5%
Arts, Entertainment
3%
n= 29
n= 57
n= 17 n= 17 n= 106 n= 31 n= 66 n= 22 n= 29
Employee 1-6: Which of the following best describes your current occupation? Employee 4-3 With which of the following employers have you signed a non-compete agreement?
1
Employees with high incomes are more likely to have signed a non-compete agreement. Non-Compete Agreements by Employee Income Level
40%
33%
26%
17% 14% 10% 8%
Less than $15,000 11 of 136
$15,000 to $24,999 21 of 213
$25,000 to $49,999 86 of 611
$50,000 to $74,999 75 of 439
$75,000 to $99,999 $100,000 to $149,999 More than $150,000
Employee 7-6 Which of the following best describes your current personal, gross annual income from employment? Employee 4-3 With which of the following employers have you signed a non-compete agreement?
73 of 282
63 of 192
23 of 58
1
Employees with access to confidential business information are, on average, three times as likely to sign a non-compete agreement. Non-Compete Agreements by Employee Investment and Access Company Provided Training
27% 21%
Formal degree program 69 of 258
30%
20%
Professional CE courses
19%
Certification training
143 of 697
On-the-job training
149 of 742
262 of 1408
17%
None of the above 49 of 281
Information Access 27%
25%
25%
24%
22%
22%
22%
8%
111 of 366
214 of 987
202 of 808
155 of 621
240 of 987
227 of 1010
Employee 1-10 Please indicate what types of employer-funded training, if any, you have been offered or received in your job. Employee 4-3 With which of the following employers have you signed a non-compete agreement? Employee 1-9 Please indicate what types of information you have access to in your current job.
244 of 1089
152 of 679
28 of 350
1
Employees across age, gender, and the educational spectrum are asked to sign non-compete agreements to some degree. Non-Compete Agreements by Employee Demographics Female
Age
18 to 24 n= 204
25 to 34 n= 544
14%
Education
Less than high school
14%
High school graduate
14%
n= 14
19%
13% n= 991
n= 421
35 to 44 n= 523
20%
Male
Associate or technical degree
14%
n= 509
45 to 54 n= 371
55 to 64 n= 309
65 to 74 n= 44
19%
15%
22%
Bachelor's degree
21%
n= 702
n= 978
18%
Employee 1-2 What is your age? Employee 7-4 How would you describe your gender? Employee 7-5 What is the highest level of education you have completed? Employee 4-3 With which of the following employers have you signed a non-compete agreement?
Graduate or professional degree
24%
n= 330
2
Employees’ average overall job satisfaction is not statistically significantly different whether or not they have signed a non-compete agreement. Average Employee Satisfaction by Non-Compete Agreements n=2000
5. Very Positive 4.11
4.08
4. Somewhat Positive
3. Neutral
2. Somewhat Negative
1. Very Negative
Employees that have signed a non-compete agreement
Employee 1-8 How would you rate your overall satisfaction with your current job? Employee 4-3 With which of the following employers have you signed a non-compete agreement?
Employees that have NOT signed a non-compete agreement
2
Employers estimate 11% of employees violate their non-compete agreement. 37% of Employers have never needed to address a violation. Pervasiveness of Non-Compete Agreement Violations % of Employer Reported Employee Violations n= 455
Frequency Employers Address Non-Compete Agreement Violations
% of Employers Hiring Employees Under a Competitor’s Non-Compete Agreement
11%
n= 455
n= 937
42% 50%
35%
37% 23%
9% 4% Never
< Once Per Year
Once per Year
> Once Per Year
Employer 5-5 What percentage of employees with a non-compete agreement, violate their non-compete agreement? Employer 5-6 How often does your company need to address a former employee’s violation of a non-compete agreement? Employer 5-7 Does your company hire employees that have signed a competitor’s non-compete agreement?
Yes
Never
Yes, but only if a release is obtained
2
Awareness and Understanding of Non-Compete Agreements and Utah Law 2
50% of Employees unaided identify a non-compete agreement as an agreement to not work for a competing company after leaving their current employment. Employee Understanding of Non-Compete Agreements n= 2000 Unaided
Aided
An agreement between an employee and employer where 50% the employee agrees not to work for a competing company after leaving his or her then-current employment for a period of time.
71%
14%
An agreement in which an employee promises to protect confidential or trade secret information that is learned during employment.
39%
13% 42%
An agreement in which an employee agrees not to work in the same role/occupation after leaving his or her then-current 5% employment
Not Tested 30%
An agreement in which an employee agrees 1% not to solicit a company's clients after he or she leaves the company for a period of time. 18%
11%
An agreement in which an employee agrees not to solicit a companyâ&#x20AC;&#x2122;s employees after he or she leaves the company for a period of time.
I am not familiar with the term â&#x20AC;&#x153;non-compete agreement.â&#x20AC;?
Employee 2-1 What do you understand an employment non-compete agreement to be? Employee 2-2 Which of the following simplified statements, in your best estimation, describe(s) a non-compete agreement?
2
Many Employers see non-compete agreements as protecting confidential information in addition to preventing employees from working for competitors. Employer Understanding of Non-Compete Agreements n= 937 Unaided
Aided
An agreement between an employee and employer where 59% the employee agrees not to work for a competing company after leaving his or her then-current employment for a period of time.
79%
30%
An agreement in which an employee promises to protect confidential or trade secret information that is learned during employment.
59%
20% 64%
An agreement in which an employee agrees not to solicit a company's clients after he or she leaves the company for a period 9% of time. 47%
An agreement in which an employee agrees not 4% to work in the same role/occupation after leaving his or her then-current employment 1%
Not Tested 0%
An agreement in which an employee agrees not to solicit a companyâ&#x20AC;&#x2122;s employees after he or she leaves the company for a period of time.
I am not familiar with the term â&#x20AC;&#x153;non-compete agreement.â&#x20AC;?
Employer 2-1 What do you understand an employment non-compete agreement to be? Employer 2-2 Which of the following simplified statements, describe(s) a non-compete agreement?
2
Employees indicate a varying level of understanding towards the non-compete agreements they have signed. Awareness, Familiarity and Understanding of Non-Compete Agreement n= 595 Familiarity Before Signing
Not at all familiar
Somewhat familiar
Awareness of Signing
Not at all understand 2%
14%
Somewhat understand
10%
Extremely familiar
Completely understand
40%
96% 21%
14%
Level of Understanding of the Terms
5%
32%
25%
35%
Employee 4-9 With your most recent non-compete agreement, how familiar were you with the non-compete agreements before signing the agreement? Employee 4-8 At the time you signed your most recent non-compete agreement, were you aware that you signed it? Employee 4-4 With your most recent non-compete agreement, how well did you understand the terms of the agreement?
2
The majority of Employers and Employees were unaware that Utah passed H.B. 251 in 2016. True
Understanding of Utah Non-Compete Agreement Laws
False
Don’t Know
n= 937 | 2000 Employer 10% 20% 69% In Utah, employers are only allowed to enforce non-compete agreements against employees making $13 per hour or more 44%
14%
42%
Employee 15% 18%
66%
38%
13%
49%
36%
18%
46%
In Utah, employers are allowed to enforce non-compete agreements against non-management employees 48%
16%
36%
In Utah, employers are allowed to enforce non-compete agreements against employees whom the employer24%has terminated 39% 37% In Utah, employers are allowed to enforce 37%non-compete 11% 52% agreements that last longer than one year 21% 58% In Utah, if an employer sues an employee to enforce21%a non-compete agreement but loses, the employer must pay the employee’s attorney fees and costs 44%
6%
50%
In Utah, if an employer sues an employee to enforce a non-compete agreement and wins, the employee must pay the employer’s 50% and 6% costs 43% attorney fees
22%
25%
35%
9%
27% 13%
22% 6%
34%
53%
56%
59%
72%
6%
61%
In Utah, a law limiting the use of non-competes was passed in 2016
Prior to 2016, Utah courts limited the enforcement of non-compete agreements to those that serve a legitimate business interest…
Employer 2-3 To the best of your knowledge, which of the following statements are TRUE? Employee 2-3 To the best of your knowledge, which of the following statements are TRUE?
2
Non-Compete Agreement Preferences
2
90% of Employers and 74% of Employees agree that non-compete agreements should be allowed, so long as they are reasonable and for a legitimate purpose. Opinion on Use of Non-Compete Agreements in Utah n= 937 | 2000 18% of Information and Technology companies think that non-compete agreements should NOT be allowed in Utah.
Employer
Employee
10% 26%
74% 90%
Should be allowed in Utah, if value is given to the employee in exchange and if non-compete agreements are reasonable in time duration and geographic scope and are for a legitimate business purpose Employer 3-4 Which statement best reflects your opinion on non-compete agreements in UTAH? Employee 3-4 Which statement best reflects your opinion on non-compete agreements in UTAH?
Should not be allowed in Utah
2
Employers and Employees have varied perspectives on levels of employment where non-compete agreements are appropriate. Opinion on Use of Non-Compete Agreements by Employee Type
Employer
Employee
n= 937 | 2000 % Selected 21%
15% Hourly - Non-Management 20%
33%
Salary - Non-Management 32% 22%
50% Hourly - Mid-Level Management 37% 27%
39%
Salary - Mid-Level Management 44%
59%
Level of employee comes into play. Entry level or junior level employees who just started their career should not be treated the same as senior managers who spearhead the project. Also, it is in a much fairer spot for an executive to negotiate the terms and make sure it is fair to him than it is for a junior level person – [the employee] does not understand what is fair or not fair, and does not know what he should argue for or not argue for. - Employer
Hourly - Professional55%Role 31%
66%
50% Role Salary - Professional 52%
70%
Sales 63% Role 41%
76% Senior executive positions 53% 19%
11% “C”-level executives 10%
26%
Any employee which has received significant investment Any employee that has access to proprietary information All employees None of the Above
The problem that needs to be solved is it is standard practice for everyone to sign a non-compete agreement, whether it’s appropriate or not. Many employees are not privy to trade secrets or IP, like myself. Yet I'm restricted from finding another job that might be better for me. There are times when it is absolutely appropriate, but right now the non-compete agreement is the default or status quo. - Employee It makes sense for a manager, engineer, or your sales employees that have relationships with clients to sign a noncompete agreement. It seems common sense to have something to protect your business, but if it’s a blanket agreement on everyone it loses its meaning and has a negative effect. - Employee
Employer 3-5 In your opinion, from which types of employees is it appropriate to require non-compete agreements in Utah? Employee 3-5 In your opinion, from which types of employees is it appropriate to require non-compete agreements in Utah?
3
Opinions on the maximum term of non-compete agreements vary. 29% of Employers and 46% of Employees agree with a term of 1 year or less. Opinion on Non-Compete Agreement Term
Employer
Employee
n= 937 | 2000
46%
29% 26% 22% 20% 14%
11%
10%
7% 3%
1 Year or Less
2%
2%
1.5 Years
2 Years
3 Years
3%
1%
5 Years
0%
1%
Indefinitely
Depends on the industry or individual None of the Above circumstances of employment
Employer 3-6 In your opinion, what is the maximum length of time a non-compete agreement should remain in effect, in Utah, following an employee's departure from their employing entity? Employee 3-6 In your opinion, what is the maximum length of time a non-compete agreement should remain in effect, in Utah, following an employee's departure from their employing entity?
3
Both Employers and Employees agree that non-compete agreements protect a companies’ intellectual property and other sensitive information. Opinions Regarding Non-Compete Agreements
Agree
Disagree
Employer
Employee
n= 937 | 2000 Level of Agreement Disagree Non-compete agreements protect company intellectual property, processes, internal knowledge, and investments in employees
-9% -10%
Non-compete agreements protect companies and their employees from competition from departing employees and competitors who hire them
-10% -15%
Non-compete agreements are necessary to prevent former employees from giving proprietary information about their previous company to a competitor
-12% -20%
Employees hired by direct competitors often share proprietary information from their former company with their new employers
-10% -22%
-71%
Former employees can be trusted not to share with competitors their former company’s proprietary information
83% 72%
78% 64%
-5% -11%
Employees with access to trade secret information or specialized training are more frequently targeted for recruitment
Newly hired employees often divulge trade secrets of their former employers in exchange for large signing bonuses or higher salaries
Agree
78% 60%
77% 60%
76% 49%
-31% -35% -41%
Employee 3-7/ 3-8 Please indicate the extent to which you agree with the following statements Employer 3-7/ 3-8 Please indicate the extent to which you agree with the following statements
It does get tricky when we talk about protecting a company’s data. I don’t really know what the answer is, but I don’t like the idea that employers can prevent employees from working out of fear that they might use company information. Companies have a right to protect certain types of information and the information that belongs to companies should be protected, but the mechanism of using a noncompete agreement doesn’t feel right. - Employee
37% 30%
13%
Apart from the IP and technology, it also protects company secrets. We figured it out ourselves, we don’t want others to know it. - Employer
30%
3
There is some overlap in the degree to which Employers and Employees say non-competes can have both positive and negative effects. Opinions Regarding Non-Compete Agreements
Agree
Disagree
Employer
Employee
n= 937 | 2000 Level of Agreement Disagree
-14% -17%
Non-compete agreements encourage company investment in training, developing, and sharing information with its employees
An employer who makes a significant investment in the image, brand, customer relationships, training, or specialized skillset of an employee owns the corresponding investment (sometimes termed goodwill) and should be entitled to recoup that investment
Non-compete agreements allow employers to pay less compensation because an employeeâ&#x20AC;&#x2122;s ability to depart is restricted
Non-compete agreements inhibit innovation
Agree 69% 53%
-17% -28%
-64%
65% 42%
17%
-26%
-61% -36%
46%
14% 28%
I don't feel like my agreement ever kept me from generating ideas or seeking new business opportunities. Employee We trained our salesman and we taught them everything. We helped them develop great relationships with other companies and we gave them a lot of education. We make them more marketable, so in return, we get protection for short period of time. - Employer I think they hurt innovation. They inhibit competition from an entrepreneurial standpoint. Silicon Valley is always looked at in arguments around non-compete agreements. If Utah wants to be Silicon Valley then not having employment restrictions would allow that type of innovation to flourish. - Employee
Employee 3-7/ 3-8 Please indicate the extent to which you agree with the following statements Employer 3-7/ 3-8 Please indicate the extent to which you agree with the following statements
3
5% of employees will not work for an employer if they are asked to sign a noncompete agreement. Employees Attitude Towards Employers Asking for Non-Compete Agreements n= 2000 % Selected
I am fine signing a non-compete agreement, if the terms are fair
51%
I personally dislike non-compete agreements but I understand there are business reasons for them
- Employee
36%
I recognize that non-compete agreements can protect the company and therefore protect my job security with that employer
32%
I am willing to sign a non-compete agreement as it encourages my employer to invest in my training and development
26%
I do not want to sign a non-compete agreement, but doing so will not stop me from a joining a company
24%
I dislike non-compete agreements and I refuse to work for an employer that requires me to sign one
Non-compete agreements are fine. There are obviously cases where their should be limits on an employee. Itâ&#x20AC;&#x2122;s up to the employer to decide those limits and then I get to decide if I work for them.
5%
I think non-compete agreements protects my job because if someone jumps ship I could lose my job. - Employee Most of the non-compete agreements Iâ&#x20AC;&#x2122;ve seen are too vague. Some Iâ&#x20AC;&#x2122;ve been presented with would cause me to never code computers again in my life. It's ridiculous! There is a difference between proprietary information and the skills that an employee has. If they try to say that I can't program again, then It's ridiculous. - Employee
Employee 5-1 Which of the following statements describes your attitude with regards to an employer asking you to sign a non-compete agreement?
3
Employees indicate that having a non-compete agreement affects their behavior in different ways. Non-Compete Agreements Affect on Employee Behavior n= 595
Neutral
Positive
% Selected Made me feel that the company could trust me with specialized training and advancement Allowed the company more freedom to share collaboratively company secrets with me Provided assurance that the company I was working for could better protect its assets from being sold to competitors by unscrupulous colleagues Made me more careful to not disclose secrets of my former employer at my subsequent employment
At first I thought it was cool. I felt they were really investing in me and that they wanted my ideas. I felt valued. - Employee
13% 12% 11%
Did not affect my behavior in any way
30%
Did not prevent me from accepting the job I wanted
30%
Did not impact my job search
26%
Did not impact my willingness to look for other jobs
25%
Did not prevent me from finding a different job
25%
Limited the discussions I was willing to have with potential employers in the same industry Limited the discussions I was willing to have with potential employers wanting to hire me in the same job function
Negative
17%
14% 11%
Inhibited my willingness to look for other jobs
11%
Limited the discussions I was willing to have with potential employers in the same geographic region
10%
Kept me from accepting a job offered to me Required me to move outside a geographic region to accept a new job
The non-compete agreement seemed like a reasonable ask. The company just didn't want me to rip them off. It did not feel restrictive, it was only for a year. - Employee
6%
I feel the non-compete agreement was an intent to limit my job opportunities. It was used as a mechanism to limit my job searches. - Employee
4%
Employee 5-2 Thinking of the most recent non-compete agreement you've signed, please indicate which of the following statements accurately reflect how signing the non-compete agreement affected your behavior
3
Non-compete agreements are used by Employers to protect trade secrets and valuable company information. Employers Value in Using Non-Compete Agreements n= 455 % Employers Protect company's trade secrets 84% and proprietary information 69%
Protects existing customer relationships 67%
Prevents competitors from hiring employees with valuable company 66% information
Non-compete agreements encourage employee buyin and enhance loyalty. The employee knows beforehand that â&#x20AC;&#x153;I need to protect the company and that I am here long-termâ&#x20AC;?. The agreement makes them think about that. - Employer
Protects investment in training 55% or professional development 38%
Protects companyâ&#x20AC;&#x2122;s goodwill 28%
Fosters information sharing with 9% employees
I hire employees and train them, we introduce them to our clients and help them develop relationships. Ultimately, I am more concerned about protecting business relationships and that is why we use noncompete agreements. - Employer
Protects employee turnover
Reduces labor costs
Employer 5-1 What value does your company find in asking employees to sign non-compete agreements?
3
Employers utilize non-compete agreements to protect proprietary information as they are seen as more enforceable than a non-disclosure agreement. Employers Value in Using Non-Compete Agreements Total
2-9
10-19
20-49
50-99
100-249
250-499
500-999
1,0002,499
2,500+
n= 455
n= 91
n= 66
n= 82
n= 71
n= 55
n= 36
n= 26
n= 17
n= 11
Protect company's trade secrets and proprietary information
84%
87%
82%
82%
82%
87%
83%
81%
94%
82%
Protects existing customer relationships
69%
64%
77%
73%
66%
69%
58%
77%
65%
73%
Protects companyâ&#x20AC;&#x2122;s goodwill
67%
59%
65%
71%
72%
73%
56%
69%
76%
64%
Protects employee turnover
66%
74%
68%
63%
55%
64%
64%
81%
65%
64%
Fosters information sharing with employees
55%
53%
62%
56%
54%
55%
61%
50%
59%
36%
Prevents competitors from hiring employees with valuable company information
38%
35%
50%
44%
37%
36%
25%
27%
35%
27%
Protects investment in training or professional development
28%
25%
42%
22%
31%
25%
31%
15%
24%
18%
Reduces labor costs
9%
10%
14%
5%
11%
5%
11%
8%
12%
0%
>81% Employer 5-1 What value does your company find in asking employees to sign non-compete agreements?
61-80%
41-60%
21-40%
<20%
37
Of those with an opinion, both employers and employees think the courts rule in favor of the other party. Opinions Regarding Utah Court Rulings n= 937 | 2000 Employer
34%
Judges more frequently rule in favor of employees
Judges more frequently rule in favor of employers
Judges rule in favor of both sides an equal amount of time
Donâ&#x20AC;&#x2122;t know
I think the courts are pretty favorable to employees or err on the sides of employees. Employee
Employee
9%
6%
22%
8%
9%
53%
It's my understanding that they are relatively hard to enforce and that if the duration is unreasonable it will be struck down. They are hard to enforce if they're too broad. - Employee
59%
Whoever has the most experienced, expensive lawyer will win. It makes way for the biggest wallet to win, which will obviously be favorable to companies with teams of lawyers. - Employee
Employer 6-5 What is your opinion regarding how the Utah courts rule when an employer tries to enforce a non-compete agreement to prevent an employee from working for a competitor in Utah? Employee 6-5 What is your opinion regarding how the Utah courts rule when an employer tries to enforce a non-compete agreement to prevent an employee from working for a competitor in Utah?
3
Employers and Employees mostly agree that an employer should pay an employee’s attorney fees if the employer loses in court. Agree
Opinions Regarding Non-Compete Agreements in Utah
Neutral
Disagree
n= 937 | 2000 Employer 66% If an employer in Utah sues an employee to enforce19%a 15% non-compete agreement and the employer loses, the employer should be required to pay the employee’s attorneys’29% fees and costs 15% 56%
29% 18% 53% Employers in Utah should be allowed to enforce non-compete agreements that last longer than one year 45%
11%
44%
Employee 6%14%
80%
58%
52%
14% 16%
19%
22%
23%
26%
70%
If an employer in Utah sues an employee to enforce a non-compete agreement and the employee loses, the employee should be required to pay the employer’s attorney fees and costs
Employers in Utah should NOT be allowed to enforce non-compete agreements against employees they terminate without cause
The one year limitation is too restrictive. I would like to see something that allows more flexibility in duration because situations differ by industry. - Employer
I like that the employer has to pay the court costs if they lose. If the employer has to pay it will dissuade employers from going after employees to bully them or for vengeance. It ensures employers will only put money into pursuing instances that are causing them material harm. Employee
Employer 6-10 Please indicate the extent to which you agree with the following statements Employee 6-7 Please indicate the extent to which you agree with the following statements
I think it is a reasonable compromise that if an employee is terminated without cause the non-compete agreement should be void. If the employer terminated the employment, it should terminate the agreement. - Employee
3
Employers and Employees support different legislative approaches to noncompete agreements. Support
Support for Other State Non-Compete Agreements Legislation
Neutral
Oppose
n= 937 | 2000 Employer Prior Utah law, and the law in the majority of states, allows courts to 10% 16% determine the reasonableness of the scope and duration of 74% a noncompete agreement based on the individual circumstances of each agreement and employment situation 17% 17%
65%
Employee
14% 27%
59%
11% 21%
67%
In non trade secret cases, Florida courts presume non-compete agreements of more than 2 years are unreasonable 27%
15%
57%
In cases involving trade secrets, Florida courts presume noncompete agreements of 5 years or less24% are21% reasonable 55%
75% 12% 13% Illinois prohibits non-compete agreements for employees earning $13 an hour or less
44%
23%
12% 21%
35%
33%
68%
28%
38%
California bans all non-compete agreements
Employer 6-11 Please indicate the extent to which you oppose/support the following approaches to non-compete agreement laws Employee 6-8 Please indicate the extent to which you oppose/support the following approaches to non-compete agreement laws
4
Current Practices
4
Larger companies are more likely to have their own in-house attorney draft their non-compete agreements. Before Signing NCA
While Signing NCA
After Signing NCA
Drafting Non-Compete Agreement n= 455 Total
2-100 Employees
101-999 Employees
n=455
n=310
n=117
66%
Companyâ&#x20AC;&#x2122;s employment law attorney 17% 8%
64%
n=28
72%
13%
23%
Over 1,000 Employees 64%
46%
11%
3%
0%
10%
4%
0%
Higher among larger companies
In-house attorney 8%
4%
Online HR documents provider
5%
4%
4%
Other
Don't know
I really believe size of the company has a lot to do with it. Non-compete [agreements] intimidate smaller companies. Big companies have more money to spend, they have in-house lawyers who got paid all year around, so they have no problem sending a demand letter. But every time I call a lawyer, I need to pay money. There was a non-compete case in my company, my lawyer said the fee is $5,000. I weighed the pros and cons trying to justify the cost. Finally I forgave it. - Employer
Employer 4-5 Who drafted the non-compete agreement your company currently uses? (Only asked of employers who ask employees to sign non-compete agreement) n=455
4
Employees indicate they are asked to sign non-compete agreements later than what is indicated by Employers. Before Signing NCA
While Signing NCA
After Signing NCA
Timing of Signing Non-Compete Agreement n= 455 | 595
Employer
Employee
% Selected 74%
Before accepting offer
19% At the time of job offer and before the offer is accepted 15% 25% 10%
After the employee accepts 4% the job offer but before the first day of work 6%
After accepting offer
24%
After offering a promotion or a3%new role or 7% responsibilities 1% 10%
The first day on the job 42% of employees report that they could not have consulted with an attorney before signing their most recent non-compete agreement.
When the company ownership structure changes
After the first day on the job
It should be a discussion before the employee accepts the offer. If the employee has already quit the last job and is showing up in the new job, and then is told to sign the non-compete agreement, he has no choice. - Employer
If I had received the non-compete agreement with the job offer, I think I would have explored other opportunities before committing to the agreement. - Employee
Employer 4-7 Please indicate at what point you inform individuals that they will be asked to sign a non-compete agreement. Employee 4-11 With your most recent non-compete agreement, please indicate when you were given a copy of the non-compete agreement.
4
Employees who receive higher compensation are more likely to: 1) request changes to an NCA and 2) have those changes approved. Before Signing NCA
While Signing NCA
After Signing NCA
Modifications to Non-Compete Agreements n= 455 | 579 We sometimes allow modification of the agreement, but it depends on the position type. If it's an operations officer or key level person, we will allow it to be modified; but if it is a technician in one of our stores, we probably will not allow it. - Employer
Employer Never, we do not allow edits to the agreement
33% 51%
Rarely
I was scared that if I didnâ&#x20AC;&#x2122;t sign the non-compete agreement I would lose the job. - Employee
12%
Occasionally A moderate amount
2%
Frequently
1%
Employee
They give you a whole stack of papers to sign when you start. One of the items was a non-compete agreement. I just signed it. My sense is that it is not anything that Iâ&#x20AC;&#x2122;ll have to worry about. - Employee Less than $50,000
$50,000 to $149,999
No, I just signed
Yes, but I eventually signed without any changes Yes, but I eventually signed with changes
86%
81%
11%
8%
8%
6%
Employer 4-6 How often do employees request changes to the text of the non-compete agreement before signing? Employee 4-7 With your most recent non-compete agreement, did you request any changes before signing it?
More than $150,000 n=28
n=334
n=217
78%
14%
8%
75%
11%
14%
Higher among high-income employees
4
Some Employees consider terms of their non-compete agreement unfair; 38% of those indicate reasons related to use of skills and knowledge. Before Signing NCA
While Signing NCA
After Signing NCA
Employee Perception of a Non-Compete Agreementâ&#x20AC;&#x2122;s Fairness n= 595 Employee Overall Job Satisfaction Completely / Moderately Fair
19%
40%
Somewhat Fair
25%
50%
34%
Slightly Unfair / Not At All Fair
22%
26%
36%
34%
31%
35%
44%
Very Positive
51%
36%
40%
Somewhat Positive
Neutral
30%
28%
Somewhat Negative
19%
Very Negative 38%
Reasons Employees Consider a Non-Compete Agreement Unfair Unaided | n= 156 15%
12%
Other*
3%
4%
5%
NCA's are a form of indentured servitude
Terms were vague or confusing
Felt too pressured/fo rced to sign
15%
18%
8% Only benefited Was used to limit Principally employer, not my against such employees compensation agreements
Length of time too long
Wouldn't allow me to use my skills in the future
*Others include: I do not have specialized knowledge, I did entry level work, was terminated without cause, terms too restrictive, etc. Employee 4-5 With your most recent non-compete agreement, did you feel the terms of the agreement were fair? Employee 1-8 How would you rate your overall satisfaction with your current job? Employee 4-6 Why did you feel the terms of your most recent non-compete agreement were not fair?
4
Employers of larger size are more likely to offer additional compensation when asking employees to sign a non-compete agreement after starting their job. Before Signing NCA
While Signing NCA
After Signing NCA
Additional Compensation to Sign Non-Compete Agreement n= 80 | 268 Employer
2-100 Employees n=47
Yes
36%
30%
64%
No
101-999 Employees Over 1,000 Employees n=27
n=6
67%
41%
70%
59%
More often with larger firms
33%
Employee None
80%
Additional compensation
8%
Promotion
7%
Non-monetary benefits
4%
I donâ&#x20AC;&#x2122;t think the mere offer of a job is consideration enough to sign a non-compete agreement. I think the non-compete agreement should come with additional guarantees or consideration. - Employee
Additional training Other
4% 6%
Employer 4-8: You indicated you ask employees to sign a non-compete agreement after starting the job. Do you offer additional compensation, non-monetary benefits, or training to encourage employees to sign the agreement? Employee 4-12 - You indicated you were asked to sign a non-compete agreement after starting your job. Which of the following, if any, were you offered to encourage you to sign the agreement?
4
Higher compensated Employees indicate they are more likely to be allowed to modify or be released from their agreements. Before Signing NCA
While Signing NCA
After Signing NCA
Seeking Modification/Release From a Non-Compete Agreement n= 455 | 579 Employer 38%
Never, we do not allow
50%
Rarely Occasionally
We have people come to us and asked to be released from their non-compete agreement (and I have done so myself). They explain here is where I want to go and what I want to do, and we release them because we do not see any competitive threat.
10%
- Employer
A moderate amount 2% Frequently 1%
Employee
Yes
No
11%
Less than $50,000 n=217
7%
89%
$50,000 to $149,999 More than $150,000
Higher income are slightly more likely to seek change
18%
12%
93%
n=28
n=334
88%
82%
Employer 4-9 How often do employees seek to modify or be released from a non-compete agreement after signing (for instance when departing the company or changing roles)? Employee 4-13 Have you ever sought to modify or be released from a non-compete agreement (for instance due to you departing the company, changing roles, or having a change in corporate ownership)?
4
Employees indicate they may or may not receive assistance from an attorney when they seek modification or release from their non-compete agreement. Before Signing NCA
While Signing NCA
After Signing NCA
Process of Seeking Modification/Release from Non-Compete Agreement n= 63
Have a chance to consult an attorney
Yes
No
Receive assistance from an attorney
Receive assistance from new employer
38%
60%
37%
62%
40%
63%
Reasons for Not Seeking Modification/Release from Non-Compete Agreement n= 532 46% 41% 28%
27%
27% 17%
Not planning to Agreed to the terms compete against my of the agreement employer
Believe the agreement is fair
Do not believe Do not plan on leaving Too expensive to employer would be the company hire an attorney willing to modify the agreement
15%
No need, because I do not believe my employer will enforce it
Employee 4-15 In seeking modification or release from your non-compete agreement, did youâ&#x20AC;Śhave a chance to consult an attorney/ receive assistance from an attorney/receive assistance from your new employer Employee 4-16 Why have you NOT sought to modify or to be released from your non-compete agreement?
4
Some Employers say they are willing to consider a modification request and that the two parties reach agreement after negotiation. Before Signing NCA
While Signing NCA
After Signing NCA
Outcome of Seeking Modification/Release from Non-Compete Agreement
Employer
Employee
n= 284 | 63 % Selected 41%
The request was considered and a compromise was reached 33% 0.13
0
12%
The circumstances dictate 0.33 the company’s determination to modify the7%agreement 0.49
94% of employers seek assistance from an attorney when employees seek to modify or be released from their noncompete agreement. 27% ‘Always’ consult an attorney in these situations.
The request to modify was refused
The agreement was modified according to the employee’s request
Employer 4-10 What is the general outcome of employees requesting modification of their non-compete agreement? Employee 4-14 What was the outcome of you seeking modification or release from your non-compete agreement?
4
61% of Employers say they remind Employees of their non-compete agreement at the time of the Employees departure. Before Signing NCA
While Signing NCA
After Signing NCA
Remind Signing Non-Compete Agreement
Employer
Employee
n= 455 | 595 % Selected 61%
Yes, at the time of their/my departure
15% 35%
Yes, during their/my employment
Yes, through post-employment verbal communication Yes, through a cease-and-desist letter
No
We brought up an employeeâ&#x20AC;&#x2122;s non-compete agreement [to the employee] who was going to go work for a competing company and that it violated the agreement, but we did not have to take the issue to court. - Employer
22% 24% 5% 21% 1% 18% 66%
The non-compete agreement has a deterring effect - when people want to leave, we will have serious discussions and remind them of not joining directly competing firms. This prevents escalation and litigation. - Employer
Employer 6-1 Does your company ever remind employees that they have signed a non-compete agreement? Employee 6-1 Did your employer ever remind you that you had signed a non-compete agreement?
5
Protecting confidential information and customer relationships motivates Employers to enforce non-compete agreements. Before Signing NCA
While Signing NCA
After Signing NCA
Factors Determining Enforcement of Non-Compete Agreement n= 439 78% Employee’s access to trade secrets or confidential information 69%
Level of customer/client cross-over shared between employee’s new company 66%
Depth of customer/client relationships 62%
Significant investment had been made in the image, brand, customer 60% relationships, training, or specialized skillset of the employee 32%
Employee’s level/role in company 30%
Employee resigned from employment 28%
Employee’s length of 25% employment Employee was terminated from19% employment 5%
Amount of competition present in the market Decreasing company market share Increasing company market share
Employer 6-2a Which of the following factors, if any, would determine whether your company would seek to enforce a non-compete agreement if an employee violated it?
5
Employersâ&#x20AC;&#x2122; inclination to enforce their non-compete agreements varies. Before Signing NCA
While Signing NCA
After Signing NCA
Likelihood of Enforcing Non-Compete Agreement n= 455 | 595 Employer
Think NCA should be allowed in UT
Think NCA should NOT be allowed in UT
n=442
Not at all likely to enforce 6%
4%
12% Somewhat likely to enforce
39%
12%
33% 21%
Extremely likely to enforce
n=23
28%
34% 22% 29%
13% 22% 17% 9%
Employee Not at all likely to enforce
12% 18%
Somewhat likely to enforce
37% 14%
Extremely likely to enforce
Itâ&#x20AC;&#x2122;s my understanding that they are relatively hard to enforce. If the duration, or any of the other terms of the agreement, are too broad or unreasonable the non-compete agreement will be struck down. - Employee
18%
Employer 6-2 In your judgment, what is the likelihood your company would seek to enforce a non-compete agreement if an employee violated it? Employee 6-2 In your judgment, what is the likelihood your employer would seek to enforce your non-compete agreement if you violated it?
5
65% of Employers say they have never taken an employee to court or arbitration regarding their non-compete agreement. Before Signing NCA
While Signing NCA
After Signing NCA
Employer Enforcement of Non-Compete Agreements n=937 Verbally Suggest Action
More Morethan thanonce onceaayear year
Once Onceaayear year
Lessthan thanonce onceaayear year Less
Never Never
2%
Send Cease and Desist Letter
More than once a year
Once a year
5%
48% Less than once a year
44%
Never
3%
Court or Arbitration
More than once a year 1%
Once a year 2%
7%
Less 51% than once a year
38%
33%
Never
65%
I had to switch industries because of my non-compete. I didn't even consider looking in the same industry because I didn't want a conflict. The company had threatened to go after people beforeâ&#x20AC;ŚI was told they would enforce it if I went somewhere else. - Employee Employer 6-6 How often does your company verbally suggest the prospect of filing a court action against a former employee as a way to address violations? Employer 6-7 How often does your company enforce their non-compete agreements by sending a cease and desist letter to former employees that your company suspects are violating, or may violate, their non-compete? Employer 6-8 How often does your company enforce non-compete agreements by taking an employee to court or arbitration?
5
Communicating verbal demands and sending cease-and-desist letters are the most frequently used methods of enforcing non-compete agreements. Before Signing NCA
While Signing NCA
After Signing NCA
Employer Enforcement of Non-Compete Agreements
Employer
Employee
n= 455 | 2000 Actions Taken
Results of Actions 45%
verbal demand Communicated Communicated verbal demand
14% 44%
Sent the employee a cease-andSent the employee a cease-and-desist letter desist letter theornew oremployer future employer a SentSent the new future a cease-and-desist letter cease-and-desist letter
Filed a lawsuit Filed a lawsuit
Sought an injunction a courtfrom a court Soughtfrom an injunction
Other
Other
None of the above None of the above
38%
The negotiated a Thetwo two sides sides negotiated a resolution resolution The employee did not take The employee did not take or remain in the or new job
12%
remain in the new job
30%
Theemployer employer did not follow-through The did not follow-through with the demand with the demand
6% 17%
The sideswent went to court the won The two two sides to court and theand employer employer won
6% 13%
10% 14% 7% 12% 5% 8% 4%
3% The two sides went to court and the The two sides went to court and the employee won employee won 1%
4% 3%
Other Other
3% 31% 72%
None of the above None of the above
Employer 6-3 Which of the following, if any, has your company taken in order to enforce a non-compete agreement? Employee 6-3 To the best of your knowledge, which of the following actions, if any, has your employer taken in order to enforce a non-compete agreement? Employer 6-4 What have been the result(s) of your action(s) Employee 6-4 To the best of your knowledge, what have been the results of your employerâ&#x20AC;&#x2122;s actions
6% 4% 37% 74%
5
Effects of H.B. 251
5
Most respondents have not made, nor noticed, any changes today in employment practices since the passage of H.B. 251. Changes in Company’s Employment Practices Post H.B. 251 n= 925 | 2000
Employer
Employee
% Selected 71%
Company has made no change since the passage of this new law
85%
16% 5%
Company shortened their non-compete agreements to one year 13% 6%
Company has looked at other agreements to protect their business interests 6% 4%
Company changed their practices related to enforcement of non2% compete agreements 3%
We have not felt an impact from H.B. 251. Probably because we don’t even have to think about it. The terms of our NCA that we have our founder teams sign are generally only for 12 months. Tech moves so fast that by the time a year is up, we’ve moved past the stage where their knowledge is helpful. That’s probably why we’ve seen zero impact is because the law didn’t solve anything, it has never been an issue for us. - Investor
Company decided to discontinue using non-compete agreements
Employer 3-3 Since the passage of Utah’s new law regarding non-compete agreements, what changes have been made in your company’s employment practices? Employee 3-3 Since the passage of Utah’s new law regarding non-compete agreements, have you noticed any changes in the employment practices at your current employer? Investors participating in the survey were not asked this question (thus n=925 for employers). The quote from an investor is from an in-depth telephone interview with that investor
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57% of Employers and 70% of Employees say H.B. 251 will have little to no impact on their organization. 36% of Employers say it will have a negative impact. Opinions Regarding Impact of H.B. 251 on Individuals Organization n= 937 | 2000 Employer
5%
Employee
2%
5% 14%
11%
2%
9% 57% 25% 70%
Significant Positive Impact
Somewhat Positive Impact
Little to No Impact
Somewhat Negative Impact
Employer 3-2 Please indicate the impact you believe this new Utah law limiting non-compete agreements has had or will have on the following: your own organization Employee 3-2 Please indicate the impact you believe this new Utah law limiting non-compete agreements has had or will have on the following: your employer organization
Significant Negative Impact
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69% percent of Employers believe H.B. 251 will have a negative impact on their ability to protect proprietary ideas, inventions, or processes. Opinions Regarding Impact of H.B. 251 n= 937 | 2000 Free Market 9%
2%
IP Protection
13%
8%
Employers’ Loyalty
3%
10%
3%
Employees’ Loyalty
10%
9%
2%
Negotiate Contracts 3%
14%
12%
20%
34% 20%
Employer
33% 40%
36%
40%
36%
31%
43%
34%
35%
7%
8%
5%
9%
4%
17%
19%
3% 27%
35%
37%
40%
33%
Somewhat Positive Impact
4% 17%
20%
28%
Employee
Significant Positive Impact
7%
27%
28%
26%
47%
6% 4%
Little to No Impact
44%
Somewhat Negative Impact
3-2 Please indicate the impact you believe this new Utah law limiting non-compete agreements has had or will have on the following: The ability of private businesses to organize and operate for profit in a competitive system The ability of private businesses to protect proprietary ideas, inventions, or processes Employers’ loyalty to employees Employees’ loyalty to employers The ability of employers and employees to privately negotiate the terms of their employment contract
Significant Negative Impact
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Employers and Employees vary in their feelings towards H.B. 251. Utahn’s Opinion Regarding H.B. 251
Employer
Employee
n= 937 | 2000 % Selected* The new law discourages employers from making long-term investments in employees
-31% -12%
The new law is an example of government involvement in the business environment and will harm Utah’s economic development
-24% -12%
32% 57%
11% 18%
The new law will hurt job growth in Utah
-8% -7%
8%
The new law was unnecessary and should be repealed, allowing for Utah courts to adjudicate non-compete agreements
-22% -7%
8%
The new law inhibits an employer’s ability to retain talent or employees whom the employer has paid to train The new law should have provided for longer duration of non-compete agreements in justifiable circumstances…
-30% -13% -49%
The new law protects the ability of employees to use their skills and work in their chosen profession
The new law encourages entrepreneurism
18%
The new law will encourage job growth in Utah
18%
The new law should have gone further and eliminated non-compete agreements entirely
3% 10%
The new law creates a deeper talent pool
-20%
* Top 3 (respondents allowed to select up to 3) Employer 3-1 Which of the following statements best reflect(s) your feelings toward this new law limiting the use of non-compete agreements in Utah Employee 3-1 Which of the following statements best reflect(s) your feelings toward this new law limiting the use of non-compete agreements in Utah
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53% of Employers believe expanding non-compete legislation would negatively impact their organization. Employers Opinion on Impact from Additional Legislative Action Regarding H.B. 251 n= 937
If Utah Repeals H.B. 251
If Utah Expands Non-Compete Legislation
4% 3%
9%
3% 8%
22%
28% 40%
51%
31%
Significant Positive Impact
Somewhat Positive Impact
Little to No Impact
Somewhat Negative Impact
Significant Negative Impact
oyer 3-9 What would be the impact your company would experience if non-compete agreements were significantly limited, even further than the legislation passed in 2016, or completely prohibited in Utah? oyer 3-10 What would be the impact your company would experience if Utah repealed its legislative restrictions on non-compete agreements and returned to court-enforced standards in place prior to legislation?
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Some Employers have concerns about expanding non-compete legislation in Utah. Employers Reaction to Additional Legislative Action Regarding H.B. 251 n= 937 If Utah Repeals H.B. 251
If Utah Expands Non-Compete Legislation 31%
27%
More start-up companies will be created 24%
6%
Our company may reduce or choose not to expand our operations in Utah 18%
14%
Employee mobility will lead to innovation 13%
34%
11%
26%
Our company may invest in additional training of employees 10%
3%
Our company may expand operations in Utah 9%
31%
Our company may look to leave the state of Utah
Our company may broaden communications involving company secrets to include more employees
Employer 3-11 Please indicate the extent to which you agree with the following statements: If non-compete agreements are significantly limited or completely prohibited in Utah Employer 3-12 Please indicate the extent to which you agree with the following statements: If Utah repealed its legislative restrictions on non-compete agreements
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Focus Group and In-Depth Interview Insights Qualitative Research is primarily exploratory research. It is used to gain an understanding of underlying reasons, opinions, and motivations. It provides insights into the problem and helps to develop ideas or hypotheses. Qualitative information is by nature anecdotal. It provides additional context and perspective in research efforts. The following slides provide themes and ideas that were shared during focus groups and interviews. The information presented is not meant to convey that every participant felt a given way or had the same opinion, but rather that some participants held the opinion and felt the ideas were relevant to the discussion. 6
Employers are more likely to identify positive aspects of non-compete agreements, though both groups identified some common positive themes. Employer Sentiment: Protects entrepreneurial companies and protects investors Protects employee goodwill Gives employers more leverage with employees
Employee Sentiment:
Common Ground: Encourages investment in employees Protects partner relationships (vendors, suppliers, and clients)
Forces employees to broaden skillsets
E V I H T T A H T I C L R A A U E Q S E R
Discourages betrayal, enhances loyalty
Protects employees who remain behind
Encourages innovation and idea sharing Reduces turnover, increases certainty in business development Informs valuation of human resources / goodwill / technology / IP
Protects intellectual property, technology, sales relationships, confidential/proprietary information and other sensitive information
S E M E
Increases institutional knowledge in the workplace
Creates trust and builds synergy
Protects company and job security
Limits retaliation
It is useful in the startup industry. If I am going to invest in a company, I feel a lot better investing when there is some sort of protection on my investment. - Employer We have a pool of smart engineers, if they are concerned that sharing ideas and developing new products would be taken away by someone else, they would not be as open to share the information on a day-to-day basis. - Employer
When employees receive training and then leave, I feel like they are taking advantage of the company. It makes it harder for those who work there and who want to stay. I think NCAs can help keep talent in house and make a better environment for employees. - Employee For anchors/reporters, we spend a lot of time and money promoting them as our brand, that is to the benefit of both the individual and the station. - Employer
All the positives seem to be how it helps the company, which affects me, but none of it is to actually protect me as an employee. - Employee
I see positives for a collective group of employees to sign a NCA, but I don't see much positive for the individual employee. If everyone signs it there is not as much turnover, costs are down, profits up, etc. I think as a group of employees it's a positive. For me myself though, not much. - Employee
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Both Employers and Employees identify negative aspects to non-compete agreements, including some aspects where perspectives overlap. Employer Sentiment:
Employee Sentiment:
Not enforceable in lots of industries Legal fees are costly Not useful in relationship-driven businesses
Common Ground: Creates friction between employer and employee, scares talent and hurts relationships
Infringes on an employees right to work Forces employees to remain in negative employment situations
E V I H T T A H T I C L R A A U E Q S E R
Laws are too fuzzy, leading to lack of understanding Employee loses bargaining power with current employer Limited timeframe
Lack of predictability for both employees and employers
May be abused by companies
S E M E
Agreements are not easily understood
Discourages competition and innovation
Allows employers to compensate employees less
Employees lose potential job opportunities and hurts personal development
Decreases employee engagement, disincentivizes employees
Disproportionately hurts lower-level and less experienced employees
Adds stress and anxiety
Decreases labor pool
We need competition and need to encourage startups. Non-competes may discourage people from applying their trade freely. In CA, you can quit before lunch and after lunch join a company across the street doing the same stuff. You know - there is lot of innovation that comes out of that, there is a lot of value in that. - Employer
If you work at a certain company or industry a long time you'll have all this specialized experience that is wasted. You acquire experience and then you can't use it, aside from at that company. - Employee
I think non-compete agreements are very one sided. They benefit employers with no upside for employees. Except for a job, which isn't a big thing in my industry. I can just find another job. There is no real upside for the employee. - Employee
Non-compete agreements can lead to abuse - employers send out the agreement to all employees and then try to enforce them illegitimately. - Employer
I am worried about the younger employees who do not have the financial means to take one to two years off. - Employer
If there is something you no longer like at the company, or if the culture is negative, or there is something you principally do not agree with, the NCA doesn't allow you to leave. - Employee 64 6
Investors see value in non-compete agreements in helping to protect their investments and providing greater certainty in the valuation process. Summary of Findings:
Affect of NCA on Likelihood to Invest and Company Valuation n= 11
Some investors indicated that non-compete agreements protect the value of their investment -Investors have specific concerns around the likely departure of key employees and senior management at the time of acquisition or restructuring or when placing large capital investments in companies
Significantly More Likely to Invest
45% 18% 27%
Investors believe that the existence of non-compete agreements adds greater certainty and removes risk during the valuation process
Investors feel non-compete agreements of a longer term (>1 year) are necessary for senior employees, including for some who may not be equity owners of the business
Companies looking to possibly locate in Utah generally indicated that non-compete legislation was not material to their decision making process
9%
0%
Significantly Less Likely to Invest
45%
36%
E V I H T T A H T I C L R A A U E Q S E R
-Investors generally feel that the carve out in H.B.251 for the case of sale of business is helpful
No Effect
S E M E
Significantly Increases Valuation
18%
No Effect
0% 0%
Significantly Decreases Valuation
If the company already has a non-compete in place, we will look to see if it is sufficient – we want to make sure it is specific and tied closely to the company’s interests. If an agreement is not in place, we will request senior level employees to sign a non-compete agreement. - Capital Investor
The key thing for investors is the value of the company, we are trying to make a valuation with some certainty in the future. Any uncertainty will discount the price of the company. - Capital Investor
If we have a situation where we cannot create a noncompete contract sufficient for our investors, then the investors are going to either walk or discount the price. Capital Investor
Employer 5-4 - How does a company having non-compete agreements in place with its employees affect your likelihood to invest in that company? Employer 5-3 - If a company has non-compete agreements with its employees, how does that affect your valuation of the company?
-
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Non-compete agreements are generally favored by Employers because the ability to prove violation is easier, compared to other agreements. Opinions on Effectiveness of Employment Agreements Effectiveness of Protection NonCompete
NonDisclosure
NonSolicitation
Trade secrets
NCAs are really contentious for me. But as I understand, it is already illegal for an employee to leave and take confidential things with them even without a non-compete. Employer
E V I H T T A H T I C L R A A U E Q S E R
Proprietary Information
Existing Customer Relationships
Goodwill
Employee Turnover Investment in training/ professional development
Strengths of Non-Compete Agreements
Competitive relationships are easy to identify, while non-disclosure of information or solicitation of ones clients or customers is harder to prove.
Non-compete agreements are an additional tool employers can use to protect a company’s investment in it’s employees, and ensure the investment does not benefit a competitor. Repayment agreements do not provide that same protection.
Weaknesses of Non-Compete Agreements
Are only for a limited duration – whereas a non-disclosure or nonsolicitation can extend for longer periods of time.
S E M E
We can protect proprietary information with a non-disclosure. With clients or customers, we can use a non-solicitation. So we don't necessarily need a non-compete. This is a free market, if somebody leaves and they have a better relationship with the client, then the client leaves us. All that means is I need to work harder. - Employer Non-disclosure agreements are hard to enforce. But noncompetes are easier to prove - it is easier to know if someone is competing vs using proprietary information. Employer Trade secrets may not always be the ‘Coke formula,’ it could be the company’s weakness. E.g., we are not capable of serving some type of client. If an employee goes to a competitor, you have no way to make sure that information is not leaked out. That information is just as valuable to competitors as the information on what you do well. - Attorney
If employees go to work for your competitor and they don't take any paper or documents, they still have that proprietary information in their head and they cannot avoid using it. The same goes for a non-solicitation - you cannot enforce it unless you find out they are soliciting. Employer When you look at Silicon Valley, all the tech companies work on super secret projects, yet all have found ways to protect IP and keep their employees WITHOUT a non-compete agreement. Employee
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There is some overlap between Employers, Employees, and Attorneys with regards to perspective on non-compete legislation. Common Themes: Non-compete cases are too specific and circumstantial to legislate Legislators could provide more clarity and public education in order to raise understanding and awareness of H.B. 251
Some people, such as IT managers, earn a high salary because of their job position, but if they leave, I would care less because they are not taking anything important away, they just know our internal IT. - Employer
E V I H T T A H T I C L R A A U E Q S E R
Though some employers and employees are suspect of legislation to add clarity, if legislation were to happen, scope could be narrowed and defined, and provide specific guidance on terms, such as: - Industry type (e.g., whether NCAs are less applicable or relevant in certain industries)
- Geographical scope (e.g., whether certain geographical approaches are presumed too broad)
- Employee type (e.g., whether you can define presumptions by responsibility, level of access, or contractor vs. direct employee) - Information Access (e.g., whether defined by people who have access to trade secrets, proprietary information, business strategy and other confidential information)
- Compensation level (e.g., whether common calling or lower income positions should have non-compete agreements) - Employment situation (e.g., whether employees who are laid off should be released from non-compete agreements)
S E M E
I think some clear guidelines have to be established. If legislation were to restrict noncompete agreements to certain key positions there has to be established guidelines. - Employee
If somebody didn't do anything wrong, and it is just my decision to lay off him/her, I should not prevent that person from getting a job elsewhere, even if it is a direct competitor. I don't want to take away their ability to provide for their family, as long as they do not share confidential information. - Employer
Not everyone has the ability to divert goodwill – so if you impose a non-compete on someone who is not able to do that, you just risking the judge ruling against you. You have to narrowly tailor the agreement to the proper employees if you want the agreement to be enforceable. - Attorney
For the non-compete that seeks to protect the value of the business and investments, duration should be case by case, and may need a longer period than one year in special circumstances, such as change of ownership. - Employer
- Timeframe (e.g., whether presumptions exist around term of non-compete agreements in certain circumstances)
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The following ideas were proposed by participants in the focus groups. Points to Consider: Possible legislation could provide certain presumptions, such as: -Non-compete agreements that are longer than one year are presumed to be invalid -Non-compete agreements with employees with lower incomes are presumed to be invalid
As far as legislation goes, it should protect those most vulnerable to abuse: the low wage employees, the ones that it's not about protecting companies product, but more about bullying employees to maintain a workforce. Employee
E V I H T T A H T I C L R A A U E Q S E R
Under these situations, the employer would be required to prove that special circumstances for that specific employee justified the enforcement of the non-compete agreement Generally speaking, attorneys feel that better defined and narrowly crafted agreements are the easiest to enforce in courts
S E M E
I think the wage makes more sense than the category of the employee. I just don’t think how you can define based on the category because firms differ a lot. - Attorney
These agreements need to be more transparent and need to come at the time of offer, not the first day on the job. I would welcome language in the legislation around transparency rules. - Employer
Legislation could reduce the likelihood of non-compete agreements being abused by employers by:
-Limiting broad application (e.g., define “key/extraordinary” employees)
-Providing transparency (e.g., guidelines around when noncompete agreements should be presented to the employee, such as at offer) Employer could be responsible for compensating certain employees during their non-compete period
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Some Attorneys feel the term “goodwill” needs to be more clearly defined to provide clarity and to prevent overly broad application.
Consider tighten the definition of goodwill so that it specifically covers:
Goodwill is an integral part of a company’s intangible assets and needs to be protected
E V I H T T A H T I C L R A A U E Q S E R
-Customer/Client exposure
-“The compilation of information and relationships which provide a competitive advantage to the company and which was developed at company expense over a period of time.”
-Customer needs and strategy -Training
-Access to business methodologies (public or non-public)
Common Concerns about Goodwill:
We do not have a lot of guidance on what goodwill means. I think you can make a good faith argument that all those things are goodwill but we certainly don’t have the case law to support all these to be a part of the noncompete agreement. - Attorney
S E M E
Suggested Solutions:
Common Themes on Goodwill:
Definition of goodwill is not clearly defined in case law
Companies use the term “goodwill” too broadly as a mechanism to justify non-compete agreements There is disagreement about whether an employer or employee owns the goodwill
-Reputation -Business relationships (e.g., vendor relationships, referral relationships, repeat business) It (goodwill) is a big bag of information.
Personal brand (e.g., broadcasting It would be different for each employer industry) and different for each industry. - Attorney
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Focus Group participants opinions on H.B.251 vary. Awareness and Opinion towards H.B.251 Awareness of H.B.251 is low among both employer and employee representatives -Majority of the focus group participants are not aware of the new law and are not fully aware of how the law applies
E V I H T T A H T I C L R A A U E Q S E R
-Employers felt the new law had limited impact on their employment policy, while attorneys felt that the new law had a large effect -Concerns exist that one year is not a sufficient length of time to research the effect of the new law due to low public awareness and low case volumes
Several employer representatives have strong opinion towards the non-compete legislation, claiming that their companies would leave if more restrictions are imposed -One company is delaying expansion because of H.B.251
Employer representatives who support repealing the law think government interference on this issues damages their business -Non-compete issues are too complicated to legislate broadly
-Companies should be allowed to decide terms based on their specific situations
S E M E
I read about H.B.251 in the survey, but I forgot it. The fact that we have never heard of it means it is not helpful. No one cares about the Non-Compete law. Employer
I was going to expand my business last year, because of this issue, we are waiting. If it is repealed, we will attract more capital, spend millions on buildings, and we have plans to hire 150 people in the next two years. If we cannot enforce non-compete agreements in Utah, we will go somewhere else where we can. Those are critical to us. - Employer
People kept saying non-Disclosure agreements can protect trade secrets, but actually it didn’t help. We owe our continuing existence to Utah's court's willingness to enforce non-compete agreements… Were it not for the non-compete agreement we would not have stayed in Utah. 420 people would have lost their jobs. - Employer
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Thank you!
Chad Berbert | Principal
Cicero Group p: 801.456.6700
Copyright © 2017 Cicero Research, LLC. All rights reserved.
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