This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Our great state of Utah has experienced phenomenal economic growth, creating opportunity, increased economic well-being for many of our citizens and increased tax revenue to fund education and our other state-funded initiatives.
Capital helps feed this economic growth. Capital is attracted to companies and environments that foster higher returns relative to other alternatives. Utah has attracted significant capital due to its great companies, and such companies can realize their highest potential by avoiding unnecessary regulation. We need to be very careful not to upset our attractive environment through additional regulation.
New regulation regarding restrictive covenants, commonly known as "non-compete" agreements, has garnered an extensive amount of attention recently by Utah policy makers, and consequently has been on the minds of many business and community leaders in the state.
As someone who invests in companies all across the country, I believe that well-crafted restrictive covenants promote capital deployment because they safeguard important proprietary information generated and owned by companies. When our firm seeks to inject capital into companies to help them grow, we consider a company's ability to protect its assets as part of our due diligence and valuation process.
That includes a review of the company's use of agreements with its employees to limit employees from being able to take sensitive competitive information and use it to unfairly compete against the company in the future. This is especially true of younger companies that are in the critical phase of growth.
As critical as these agreements are, I also recognize there needs to be a careful balance between protecting corporate assets and allowing mobility within our economy by the talented employees who build great enterprises. That is why I was pleased to see a compromise reached on restrictive covenants during the last legislative session in Utah.
What started as an outright ban on restrictive covenants — which would have been catastrophic to the business community — evolved into a compromise that protects both employers and employees. Because the new law has been in effect for less than a year, Gov. Gary Herbert was correct to indicate that without further study on the issue, any additional changes to the law would be imprudent.
Thus, I was surprised to see the announcement that some of our Republican legislators were teaming up with the Obama administration to continue to pursue additional legislation to limit the use of restrictive covenants. It strikes me as odd that those in the Utah Legislature who have worked so hard to limit the Obama administration's imposition of federal solutions on issues such as health care, environmental regulations and encroachment of federal lands would voluntarily partner with the White House on this issue.
With the Obama era drawing to a close, I am hopeful our legislators will avoid federal interference in our state regulations regarding noncompete agreements.
We need to be extremely careful in adding any new regulation. It risks impacting our thriving economy. Rather than allowing the White House to dictate how Utah proceeds on this issue, the more sensible course of action is to gather Utah-specific data on how non-competes are used, how employees interpret those restrictions, and what non-competes' effect on Utah's economy really is. Therefore, I support the initiative of several business organizations to gather that data before any new policy decisions are made and the governor's reasonable, data concentrated approach. Let's let Utah data and a Utah compromise drive our decisions — not D.C. regulatory ideals.
Fraser Bullock is co-founder and senior adviser at Sorenson Capital.