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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 •

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

Research Associate, Strata Policy

Vice President, xClosure

BS, Finance & Economics, Utah State University

MS Predictive Analytics, Northwestern University BS, Economics, University of Utah

Analyst, Morgan Stanley Huaxin Securities; Citi

MS, Finance, Washington University in St. Louis

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

5


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

5


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?

6


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?

-

65 6


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)

67 6


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

68 6


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

69 6


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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Utah non-compete agreement research report 2017 02 24  
Utah non-compete agreement research report 2017 02 24  
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