USA – UTAH Trends and Developments Contributed by: Layne Smith, Neal Monson, Paul Justensen and Cloe Nixon, Dorsey & Whitney LLP
Utah Non-Compete Act For businesses evaluating transactions in Utah, it is also important to account for the Utah Post-Employ - ment Restrictions Act. Enacted in 2016, this law limits the tail period that can be applied in employee non- competition obligations to a maximum duration of one year from the date of the employee’s termination. Any restrictive covenant exceeding this one-year period is void and unenforceable. The law also includes a fee- shifting provision: if an employer attempts to enforce a non-compete that is ultimately found to be unen - forceable, they are liable for the employee’s legal fees and costs. Buyers in M&A transactions should take this rule into account in drafting employment and restrictive cov - enant agreements for the target’s personnel as the non-compete tail should not exceed one year for any employees located in Utah. There are a few key areas that either fall within excep - tions to the Utah Post-Employment Restrictions Act or that are outside the scope of the Utah Post-Employ - ment Restrictions Act. First, this Act does not apply to non-solicit or confidentiality covenants so those covenants may have a longer duration. Secondly, the law does not apply to non-competes executed spe - cifically as part of the sale of a business. Purchase agreements may thus include a non-compete with a reasonable tail period (up to five years is not uncom - mon). Lastly, the Utah Post-Employment Restrictions Act does not limit non-competition tails in the con - text of the ownership of a business. So, if sellers roll equity, then they can be bound to a non-compete in the shareholders’ agreement or operating agreement for as long as they retain an interest in the company, plus a reasonable period (which can exceed one year) thereafter. With an awareness of these rules, buyers are able to create structures that successfully protect the target’s goodwill post-acquisition.
Conclusion Utah’s rapidly growing economy and business-friendly environment continue to elevate its importance as a jurisdiction for corporate and M&A activity. Its legal framework reflects a distinctive, more flexible and less developed approach than other jurisdictions (like Delaware) in how it addresses issues such as fiduci - ary duties, fraud and sandbagging. The recent crea - tion of the Business and Chancery Court signals a move towards greater specialisation and predictabil - ity in resolving complex disputes, though its practical impact is still developing. Taken together, Utah offers a flexible and attractive environment for M&A transac - tions, but one that requires thoughtful planning, con - servative structuring where uncertainty exists, and careful attention to contractual risk allocation.
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