H.B. 203 Non-Compete Amendments: transcript

That's correct. Yes. Yes, Mr. Chair, I'll be speaking to the first substitute.

Thank you. Thank you so much, Mr. Chair and thank you committee for hearing hearing us out today on HB 2 0 3. Um, in front of you, as Ronan is passing it out, we've compiled, uh, research from across the country and also at the University of Utah that talks about how non-competes are a very serious tool in our economy. House Bill 2 0 3 seeks to restrict the use of harmful non-compete agreements and make sure that we're only using it when absolutely necessary. The history of non-compete agreements, they started in the boardroom. They started with high level executives who had access to insider information, proprietary knowledge, uh, intellectual property and trade secrets. And these types of non-compete agreements was kind of like when you sign LeBron James to your team, you, uh, you're locking this person up in a contract, and so you're paying them a premium to do so because when you lock someone into a non-compete agreement, you now you're not allowing the free markets work so that if that, uh, worker was able to find a better opportunity, they're no longer able to do that. And so these contracts historically came with paying individuals a, a premium for, uh, for being in this type of contract. But over the years, we've seen that these types of contracts, these restrictive non-compete agreements, have made their way from the boardroom and they've proliferated through all sectors of our economy. The Echos report that's in front of you in your packet talks about how it's a not insignificant portion of non-compete agreements exists at the retail level in food service and places where it doesn't make sense to put workers under these restrictive non-compete agreements. So take for example, uh, a student who gets an internship at a company in downtown Salt Lake City. Now, when that student graduates, maybe he doesn't get, he or she doesn't get a job opportunity at the place where you got an internship, but now that that person is subject to a non-compete agreement, these are the kinds of things that we're seeing. Once again, uh, I know, I know personally a mother of two who works very, very hard in the tech industry. Her company, not unlike other companies who went through hard times, had to downsize because of their finances, that, uh, that woman was, was laid off not because of her performance, not because of anything she did, but rather just the finances of the companies were squeezed that woman was then subject to a non-compete agreement for a year. These are the kinds of common sense things that we're trying to get to the heart of. And finally, think of someone who's striving to be a part of the middle class. This is someone who's a waitress at Olive Garden, who while maybe there is some proprietary secrets about the soup, if so, I want to learn those. Uh, those are quite my favorite. Um, if, if she's making about $13 an hour and the restaurant down the street's making $15 an hour, the business might argue that they don't want to lose that employee. But the free market would argue that's what competition is all about. And so, I I wanna turn your attention. There's an email in your inbox that I sent to you. You, this was, this was a, a President Trump's Federal Trade Commission put on an entire seminar about non-compete agreements just three days ago. And in there I highlighted to you what the Trump administration is looking at. So the Trump administration withdrew their support from the Biden Administration's full non-compete ban. And when I spoke with the, uh, the staff at the competition department of the FTC this summer, they said this, they said that the administration absolutely seeks to restrict the use of non harmful non-compete agreements in the economy. But they don't feel that the FTC has the constitutional authority to do so. And so they withdrew their support. What do they look to? They look to us as the states to make, make these policies work for our employees and our neighbors in Utah. Um, you're going to hear in public comment a number of different industries and different important businesses from across the state speak against this bill. But I want you to keep a question in mind. Is the only approach that would work to protect intellectual property to protect trade agreements to, or trade secrets to protect important business assets is the only tool that we can use the sledgehammer of a non-compete agreement, is that the only thing that we can do is tie up workers so that they can't work. I'll turn your attention to line 68 in the first substitute. We specifically talk about how a non-compete agreement does not include a non-solicitation agreement, a non-disclosure agreement, a confidentiality agreement, or a training repayment agreement. And so we want businesses to thrive. We want businesses to invest in their workers and protect the hard, uh, and, and protect their asset that they've worked hard to earn. But at the same time, I believe that we can do this in a way that respects, uh, worker mobility and we can be more precise rather than using the sledgehammer tool. We can use the scalpel. And finally, I'll just, uh, I'll just hit here. Uh, commissioner Mark Maor from the Trump administration who he just appointed to the FTC, he concluded his speech on the 27th by saying the wrong kind of non-competes by suppressing wages, make the world less affordable for working people. And that's a problem. But we can account for this and fight these harms without bin Blanding ourselves to the narrow context in which non-competes do make sense. Striking that balance is what responsible enforcement looks like here. And so I'll just hit a couple highlights of the first substitute. This prohibits non, uh, uh, non-compete agreements for independent contractors, students, interns, workers under 18. It also requires upfront disclosure because what we're seeing is that non-compete agreements, these very serious agreements are just kind of being pushed into human resource packets as almost like a boilerplate for people's onboarding. And so recognizing the, the, the weight of these types of agreements we want to give notice, we're also making sure that these don't apply to non-exempt workers, low income workers. Um, I mentioned before on line 68 highlighting what this is not doing. What this is, making sure that businesses can still protect those things that are important to them. Um, it also puts in place protections for the, uh, in workers like the woman that I mentioned before, who to due to no fault of her own, of downsizing of their company, she was laid off and then still subject to a non-compete agreement. We're making sure that we clarify that. And those are not enforceable if someone is laid off due to reductions in the workforce. Finally, we're looking at an income threshold of $155,000. So we're keeping the 5% of Utah's economy that is in the boardroom, that are the executives that have this type of really important knowledge that we can make sure that they can enforce those non-compete agreements That make sense? And finally, there's an enforcement or a right of action if someone has been subject to a non, a non-compete agreement that is not, uh, lawful. Um, with me is, is Lauren who can, uh, talk, give a little bit more context and then also Sam Peak. Ronan is online. I believe he's raised his hand and he has a brief comment as well.

Thank you, representative. My name is Lauren Skolnik. I'm a employment lawyer. I'm mostly represent employees. We have an office in Salt Lake City, but represent people all over the state. I'm also here on behalf of the Utah, uh, association for Justice and the Utah Employment Lawyers Association. Um, I have been practicing employment law for 30 years, give or take. Um, I also teach law up at the University of Utah Law School, and I still see, not notwithstanding, um, that I helped Speaker Schultz on his bill in 2016 to put a one year restriction on non-competes after 16 substitutes that bill was finally passed. But, um, we still see, um, people every month. I probably talk to three people every month who have signed non-compete agreements unwittingly. And they are coming to me asking what they can do. And the problem is, there isn't a lot that I can tell them that gives them much encouragement because they have signed this. And now there are judges, there are some judges that say, we like the free flow of labor. It's the basis of the American economy. But some judges say, Hey, you signed it too bad. But the problem was, non-competes are supposed to be for people who have bargaining power for those who get to hire lawyers or at least are sophisticated enough to negotiate their agreement with their employer and get compensated for the idea that they might have to sit on the bench for a year after leaving an employer. Um, but we are seeing people in low wage jobs. Um, I've talked to people who've cleaned houses, clean carpets, hang billboards, um, do derma spa help fixing our skin. All these people don't have that kind of bargaining power, and yet they're being subject to these non-compete agreements. And I don't think that that is the basis of the American economy. Um, it definitely impacts people's ability to sell their labor in the most effective and lucrative way that they can. Um, and when they're threatened with a lawsuit, um, I have to say, you have to pay my hourly rate for me to go and do defend you in court, whether that is in A-T-R-O-A temporary restraining order or in two or three years of litigation if you wanna fight that. So it's not a fair fight. And so this bill really gets at the problem of low wage employees who are never supposed to be, in theory, subjected to such an onerous contractual provision. I wanna just sort of reserve a little bit of time. I know there's a whole bunch of people here who probably have lots of great points about why this bill shouldn't pass, and I'd just love a couple of minutes at the very end to, to just hit the highest, um, the most salient points. And then we have Miss, Mr. Sam p who has a brief testimony. Sam works for the Economic Innovation Group, which, uh, supported the Trump Administration Tax Cuts and Jobs Act. They were also the architect of Opportunity zones, um, that have now been reauthorized, uh, permanently as well. So, uh, thank you, uh, Mr. Chair for allowing Mr. Peak to, to speak that rhymes.

Thank you for, uh, holding this hearing concerning HB 2 0 3, a bill that restricts the use of most non-compete clauses in Utah. The Economic Innovation Group is a bipartisan organ organization devoted to forging a more dynamic entrepreneurial and inclusive US economy. I will briefly highlight the following reasons why passing HB 2 0 3 will strengthen working conditions, raise wages, create jobs, and spur innovation in Utah. First, HB 2 0 3 ensurers that non-competes are only used in exceptional cases. Trade secret protections are the most common justification for using non-competes. However, a 2023 report from the government's accountability office found that most employers using non-competes make all their workers sign them, including part-time and hourly workers. Rather than carefully crafting non-competes for employees with access to valuable information, employers make them a routine part of the hiring process. The same report also found that nearly three fourths of employers using non-competes rarely or never enforce them, despite nearly all of them citing trade secret protections as their primary justification. If these trade secrets, if these trade secrets were truly valuable enough to justify a non-compete, employers would actually pay the costs necessary to enforce them. The employer response to Washington State's partial non-compete ban in 2020 further underscores the flimsiness of most trade secret protection justifications. When Washington Ban non-competes for workers making under a hundred thousand dollars a year, economists found that employers were not giving raises to their workers making $99,000 a year to keep the non-compete in place. A survey of Washington state based employment attorneys found that the most common reasons for why employers chose to allow these non-competes to lapse was because they were not worth enforcing in court, and that they were, and that there were other legal tools available to protect sensitive information rather than protecting valuable trade secrets. Non-competes are most commonly used as a cost-free way of intimidating workers from pursuing better opportunities or launching their own businesses. HB 2 0 3 ensures that non-competes can only be used in exceptional circumstances. The requirements for the employer to pay the departing employee's full salary ensures that workers actually pay upfront costs for making workers sign non-competes, ensuring that they are not being used frivolously. HB 2 0 3 will also spur entrepreneurship. There's a consensus of economic research showing that non-competes are especially harmful to startups. They prevent departing employees from launching their own companies and severely impede the their ability to recruit the talent needed to grow. According to the US Census Bureau, startups tend to produce high impact innovations, whereas older firms tend to produce incremental innovations that merely build upon existing products and capabilities because non-competes disproportionately harm startups that make it easier to enforce them. Ex uh, states that make it easier to enforce them experience roughly a 16% decline in patenting over the course of a decade. However, non-competes also reduce patenting for the legacy firms most likely to use them. By suppressing competition from startups, incumbents, employers become insulated from the competitive pressures that drive continuous innovation and risk taking over the course. Um, overall, the benefits of non-competes, uh, restrictions are most beneficial when they reduce their frivolous use against skilled professionals who have the expertise and resources to start their own companies. For example, when Hawaii banned non-competes for tech workers in 2015, the number of tech startups in the state surged by 10% and increased overall employment. Compare this to Oregon, which banned non-competes for workers making under a hundred thousand dollars a year and experienced no notable growth in startup formation and or employment. These findings underscore the importance of including high knowledge, um, high earning knowledge workers in any non-compete reform by heavily restricting the use of non-competes. HB 2 0 3 ensures that frivolous non-competes will no longer be used to restrict worker mobility and suppress competition in a similar way that Silicon Valley's 1872 pro prohibition on non-competes created Intel a MD and other globally successful companies. HB 2 0 3 can pave the way for more prosperous and, um, and influential Utah for decades down the road. Thank you for holding this hearing.

Thank you, Mr. Chair. And last thing I'll say is in each of your inbox, you also have a signed letter of support from state and national, uh, groups and businesses, including Silicon Slopes in support of HB 2 0 3. Thank you, Mr. Chair.

Thank you, Mr. Chairman. Ms. Skolnik, uh, my go-to if I have employment law questions and, and happy to hand them off, and thank you for your help over the years. Uh, I'm, I, I understand the rationale for almost all of the bill. I'm, I don't understand the 155,000 where that came from, but more specifically, uh, number three, subsection three, a person may not enforce non-compete, uh, against an independent contractor, period. So, I mean, I can envision situations. I've been in situations where you, you employ a, an independent contractor to design a special piece of equipment and they work for years and you give them all of your secrets and you work for them. And then they go take that and create their own company, hypothetically speaking. Not that I had a case like this. They knock off your own equipment and then go sell it while they're supposed to be representing you. And anyway, you see my point, right? They're, they're with an independent contractor. You could have because there's no restrictions to that one.

Okay. I'll, I'll just briefly speak to the, I'll speak to the $155,000 threshold. And once again, uh, you all, you all know me. We, I wanna work to find a solution to make this better. Um, the $155,000 number came from the research that shows when you're prohibiting non-competes above $90,000 a year, that's going to, that's where you're gonna see your spur and entrepreneurship and new business growth. That's what the, the data shows there. And the other piece too is trying to find, just trying to find a balance where you heard, uh, commissioner Maor say at the FTC, talking about their, it makes sense for, for the boardroom. And so that was a, an attempt $155,000 encompasses 95% of Utah's economy. So it leaves five, that 5% that most of us would traditionally recognize to say this is where they started from or originated from. Um, but, but we're willing to, to work with, with everyone.

Yeah. I'm just wondering if the number where that specific number came from, was that related to something derived from something

That was, that was me attempting to get to the 95, 90 plus range number. Okay. Of the economy. Yes, sir. Okay. And then Ms. Scolnick can talk about the independent contractor piece as

Well. Okay. Yeah, there are two responses. One, independent contractors are inherently, in fact, one of the tests for whether someone's an independent contractor or an employee is that an independent contractor can sell their labor to whoever is willing to pay whatever they're willing to pay for it. And so the ability to have multiple customers is inherent in the definition of what makes someone an independent contractor versus employee. However, to your point about what happens if you allow an independent contractor access to sensitive information, now we're, we're back to this whole point of there are confidentiality agreements, there are non-disclosure agreements, there's the Uniform Trade Secrets Act. All of those tools exist to get at exactly what your concern is. A non-compete isn't necessary, and in fact, it undermines whether or not somebody is an independent contractor.

Okay. Okay. Thank you.

Lauren did answer my question. I'll go ahead and just repeat again 'cause I do want that on the record and clarify. So I'm in two different industries. One in hospitality where we do not use non, uh, non-compete. 'cause I do think it's unconscionable to make these folks who generally like to work and stay in hospitality to not be able to, you know, aid server or a shelf to be able to go to other places if it doesn't work out at my facilities. Now, as far as my other business, where we make products and we have as a company have invested thousands, if not, you know, a lot more into formulating certain products and getting the formula just correct. And then we, we then employ folks who are putting, making the product, putting the product together after we have this proprietary formula. This is where, what protections as employer do I have from the investments that I have made as a business owner to creating, to, you know, hiring chemists and formulators to create this proprietary formula. What protections do I have if a person who's making, let's say, you know, 60, 65, $70,000 an hour to make the product for me leaves and takes that formula and shares it with one of my competitors? Would

You like to speak to the IP piece?

Yeah, sure. So that's where you have both contractual tools that are not non-compete agreements, and you have law statute to protect exactly what you're talking about. You have, you can have them sign a confidentiality, a non-disclosure agreement that protects your confidential and your proprietary information. It says they can't share it. And then if they do share it, you've got a breach of contract, you can go after them. You also have the Uniform Trade Secrets Act. And that is a, even if you don't get 'em to sign the contractual provisions, you can still go after them under statute for the same reason for your, the protection of the things that you have developed that are secrets.

And that, and that when you go look at substitute one representative on line 68, we, we even wanted to highlight what it's, what a non-compete is not to exactly get to the heart of what you're talking about, of protecting that important information and your investment as a, as a entrepreneur.

Thank you, Mr. Chair. Just a, a quick question. Um, and maybe you spoke to this and I just missed it, but, um, line, uh, uh, 1 0 8, it talks about when, uh, these non-competes when you have to give notice of it. And, um, just curious, uh, it, it sounds like here that unless you were to give them 14 days notice before they started working, um, then it really couldn't go into effect. So I'm, I'm trying to think of a scenario where maybe you want them to start tomorrow. It's like, well, sorry, it, you know, we couldn't have you start tomorrow if we wanna have a non-compete, we're gonna have to have you wait two weeks before you could possibly start.

And, and what, what you're seeing there from what we're trying to tackle from a policy standpoint is day one of work, here's all your onboarding and then you just sign a really restrictive agreement. And you, and what you, what Lauren talked about, you don't know. Um, we're certainly open to finding, uh, something that makes sense there to the point that you talked about, particularly for industries that maybe have a more rapid start piece. But all we're trying to do there is make sure people really know what they're getting into when they basically say, I'm locking myself up. I'm now off the market. I cannot compete for better wages and different things like that. So that was the, that was the hope there is that we could provide some notice so that people could get a second opinion, look at it, make sure that we're following, following the, the guidelines here.

Let me just quickly say Representative Teuscher, that that's more of an issue that we see with lower wage workers where you're hiring like this, if somebody is an executive, then there, it's gonna be a longer burn for the hiring process is gonna take longer. Yeah,

I think, I think that is typically true, but there have been situations, you know, and where I've seen people be hired in my profession where we need someone fast and they're making more than what we're talking about here. And it would just, I don't know that we're necessarily requiring a non-compete, but I'd hate to tie the hands of business, you know, maybe we need a CEO tomorrow, we're gonna hire you, but here's a non-compete. And it's like, well, sorry, you gotta wait 14 days. Anyway, I, I think there's something there that you might wanna think

Through. Certainly. Absolutely. Representative.

Yes. Uh, thank you. So I was kind of trying to think about how, um, maybe somebody gets hired at, you know, 1 45 and they get a raise. They're making 1 65. How, how do you see that playing into that? Does their non-compete, maybe they, how does it transfer with, with, with, when they make a different income?

So when you, when you think about this legislation or the code that we're adopting here is, this is kind of like when the contract begins. So at the time, you know, if someone's, uh, earnings are 145,000 and they're not subject to non-compete, they could pr readdress the issue, but it would have to be a, it wouldn't be an automatic when they cross that threshold than they are subject. It's rather just saying when you're, when you're starting, you know, forward facing, I guess contract, it could certainly be re readdressed. I imagine if, if there's promotions and different things like that that then put you above the whatever we land on the income threshold. But I, I, i, is does that kind of answer your question?

Yeah, yeah. That, that, that makes sense. Okay. And then to, uh, representative Cher's, um, question. I think maybe if we tied it to say, okay, when you re you have to get it when you receive the written offer. 'cause I, I can see somebody maybe leaving a job, right. And then getting there and be like, oh, I have a non-compete now, and didn't know that when it got right in front of me. So maybe if they say if you have a non-compete, you have to include that in the, the written offer or something. I, I don't know. Just spitballing here.

No, I think that makes a lot of sense. Representative. And the, the back and forth that we had there is just practically, uh, trying to ascertain data on how many offers are verbal versus written. And, but, but I would think that's exactly the kinds of issues that I would love to, to right. Find a solution.

And one, one more Mr. Chair, uh, is how, uh, negotiated as this 1 55? I feel like it could be, I feel like we could include more people.

Uh, Well, um, the people behind me, you know, I have, we have, we've been, we've certainly been working with, uh, businesses, hearing concerns. Um, and that's where I think you see substitute one is a more modest, uh, proposal than the original bill. Um, but, but I, I wanna work with the body to, to find an opportunity to, to do exactly what I think everyone agrees with, protect legitimate business interests, protect the investments of business and their workers at the same time, make sure that we have a free market in the, in the workplace and, and help people who are striving for a better life, not be restricted by the sledgehammer approach. Let's take the scalpel

Approach. I, I know we have a lot of tech workers in this space, and they, they have high salaries and so I, I think we could protect some of them with this as well. You know, maybe there's a really, some really good, uh, software engineers doing well, and maybe somebody else wants to hire 'em for more. I wouldn't want them to be pigeonholed into one company because they, they signed a non-compete. So I like what you're doing, but I feel like I could go, could go farther

Thank you, Mr. Chair. Mr. Chair, I'd, um, curious about how exclusivity contracts would apply to this idea. I mean, I've seen all sorts of those, whether in a collective environment or others where it functions the same. Would you be willing to add some language surrounding exclusivity?

I, I would, I would certainly be open to, to working with, with you on that. Um, I think you see the ethos of what we're trying to accomplish, and, and I, if I, I think that fits in well and, uh, we'd be more than happy to sit down with you and, and, uh, continue to work, work on this piece of legislation.

I mean, typically it's similar to a clause that nobody notices when they sign the agreement. Um, they have no idea, um, until they attempt to take another job. Often it's side jobs, so you're skilled laborers, your, you know, guys that, that need, that want to do a side job so they can pay for Christmas, right? That find themselves, uh, barred from that because of an exclusivity clause. So I'm, uh, I'm particularly interested in that, uh, part of this, I, I don't know if the number's in the right place either, um, if we're even gonna have that conversation, but much like if you heard the last conversation, which I think you did, um, I'm very concerned about disclosure and clear understanding going in. And I think probably what, uh, good representative from Weaver County, uh, mentioned about when that is, uh, maybe some parameters about when that's communicated and how clearly it's communicated. Um, if adults all agree and, and we all clearly understand the limitations that we're putting on ourselves, then that's fine. Probably particularly when it comes to recruiting high-end talent and, and some of those investments that we need to make to do that. Um, but, uh, I, I view exclusivity clauses, uh, in most of those contracts is functioning the same and probably need to be addressed if we're gonna address this at all.

Yes, sir. Okay.

No, I'm getting, I'm getting kicked to the curb anyway, so,

Thank you for the opportunity. My name is Marshall Steinbaum. I'm an economics professor at the University of Utah, though I'm here in my personal capacity, I study non-competes and other restrictions in the labor market. And I think it's fair to say that this is a fairly unique question among economists in that all credible studies, as far as I'm aware, are on the side of, uh, banning non-competes. That is to say all of the, uh, reasons that they need to remain enforced do not hold up in the empirical data. My own study of the ban that, uh, Minnesota enacted a couple of years ago, which is similar to the ban that's on the table here, shows that it increased pay for workers, it increased hiring and quits and did not reduce employment. And other studies have shown that it, uh, fosters entrepreneurship. And in particular, I wanna commend this bill exactly for the unlimited, uh, restriction on non-competes for independent contractors. I work with franchisees and gig workers who are independent contractors exactly, because they want those entrepreneurial opportunities. And their main grievance in that work is confronting the reality of non-competes, when in fact, the whole reason they're in the job is so that they can pick and choose their clients. That's one of the key freedoms that they seek in that form of, uh, of, uh, uh, living their economic lives. And, uh, I can tell you, they are extremely aggrieved. I conducted a survey of franchisees on exactly this question earlier this year. Um, and I would say this was the main grievance, and they are, uh, almost to a man according to my research, uh, uh, uh, restricted by non-compete. So think about what your average entrepreneur, that's exactly what they want. That is the ability to choose their clients, and that is being denied to them. I think the economic evidence as well as the, uh, uh, experience, the anecdotal experience of people like that on the job shows why this span should in fact be enacted.

And I apologize. I meant to raise my hand. I am in support of HB 2 0 3, and that is primarily because it protects workers mobility and fairness while preserving legitimate business interest and protections. So by curving the overuse of non-competes, the bill strengthens entrepreneurship, wages, and job growth outcomes proven in states with similar reform. So when used appropriately, non non-competes are a powerful tool to protect sensitive information or executives like client list. But too often these kinds of contracts are now imposed on hardworking Utahans, barring them from their chosen profession. So imagine being a hairdresser, a carpenter, or someone working in the tech industry who wants to start their own business, but is blocked by a non-compete that bars them from their profession long after leaving the job. This ensures workers can use their skills to build their careers and businesses without unfair barriers. This is a smart pro-growth step that reinforces Utah's reputation as a dynamic, innovative, and competitive economy. Thank you.

Thank you. I'm Mary Catherine Perry, executive Vice President of Public Policy and Government Affairs for the Utah Chamber. Um, with House Bill 2 0 3, Representative Clancy has hit on an issue that significantly affects the business community and one that the Chamber has been very involved with over the years. We appreciate that Representative Clancy has listened to our feedback, um, but as the Chamber, we're still very concerned about the sweeping negative impacts that this bill will have, not just on Utah businesses, but then on the very workers he is trying to help. We agree and we believe that workers should not be trapped into unfair contracts. First of all, the $155,000 threshold means this ban would apply to 95% of Utah's workforce by far the highest threshold in the nation. And we would be joining states like California in our employment practice. This bill would take us from the best in the country to the worst. Our businesses are growing jobs faster than any state because they have certain protections, the very protections that this bill aims to remove. Why would businesses want to come to Utah if they know they can't protect their sales lists, their manufacturing secret secrets or their training investments from manufacturing to high tech, to biotech, large business, small business? There's not a sector that this bill doesn't touch. Utah's strength has been solving problems without undermining the conditions that have created our prosperity in the first place. The legislature's been down this road before, and we believe we're in a good place now. There may be room for improvement, but we would appreciate working on this with a sponsor so he can hear from experts and business leaders. While this bill is held in committee. And truly, if you want to get at it with a scalpel, this should probably be an interim study where we can hear from more businesses and more experts on this to truly find out what the data is showing us. Um, we ask that you not favorably recommend House Bill 2 0 3. Thank you.

Thank you, Mr. Chair. So I'm a little confused at your statement because you said this bill would leave you without the ability to protect intellectual property, client list, et cetera, but we just heard from our expert witness that all of those are already protected and would remain protected and lost. So if that's your only concern, and we have given those up, what is the concern?

That is not our only concern, but I do believe that the nuance between contracts and non-compete agreements is so specialized and careful that it takes careful study to get at how we can continue to have innovation in this state and allow businesses to do this while still protecting their trade secrets and their proprietary information.

So if you, uh, if you assume that we do understand the difference between contract and non-compete, there is no more concerns. That's your really, your only concern is those two things are two are not carefully defined. And with that, if we could more carefully define 'em, you'd have no more concerns. I,

I believe this needs more study. There are several concerns with the business climate that the legislature may be creating by banning non-competes on our, almost our entire workforce and not allowing businesses to protect themselves in certain ways. It's that we do have lawyers and other people here that could probably speak to that.

Thank you. Thank you, Mr. Chair. That's that that last part is the part that concerns me is that you're, you're claiming that we're not allowing you to protect yourselves when we are. Thank you, Mr. Chair.

Thank you, Mr. Chair. I was gonna, Oh, sorry. Thank you, Mr. Chair. I was gonna ask the prior witness, um, if No, go ahead. She felt like the $155,000 number should be altered and different. Um, you talked about applying it to 90% of the workforce. Is there a number on that salary, uh, component that you feel would be more workable?

We don't love that, that there's a salary threshold at all. But I will say that in the beginnings of our conversations, Representative Clancy indicated he was trying to get at lower level employees, you know, some of the ones that could be tied into, you know, a low mobility situation. But now this has captured 95% where our conversation started much lower. We don't, we haven't talked as a chamber to agree on a certain amount, but we don't, we don't want a threshold in there.

So there's no number that you'd, you'd, we, we willing to discuss? We

Have not discussed, discuss, and a number that we would negotiate on.

My name's Kelvin Cullimore. I'm the CEO of Bio Utah, the Trade Association for Life Science companies in the state of Utah. We support 180,000 jobs in the state, 22 billion in GDP. And only two states have a higher percentage of their workforce in life sciences than Utah does. We are the third fastest growing life science community in the country. This bill will inhibit some of that growth because that has been an attraction to Utah for life science companies. 10 years ago as a CEO of a biotech company, I sat down with Speaker Hughes and Representative Schultz, and we spent a lot of time working out the current construct that we have. It's been very hard fought and it's been a good construct that has served our industry well. I don't have time to articulate our opposition to the various components of this bill, but each industry is different. Those in the high tech Silicon Slopes typically care less about non-competes, excuse me, non-competes because their technology expires pretty quick. And the life science industry, it can take 10 years to get a product approved. And protecting that technology is very, very important. Our longevity is much longer, and life sciences, like I said, it can take years. Uh, once established the secret sauce of manufacturing those products continues to be an important element of IP and protection, which can often extend to lower wage employees. The good news is that our industry pays very high wages, almost 50% higher than the state average. So even low wage workers aren't really low wage in our industry. And one of the reasons that the governor's office has identified life sciences as a target industry for the state, because of the high paying jobs that we bring without significant modifications, this bill will remove an attractive reason why life science companies like to locate here in Utah. We would love to see this put to an interim and study it more. We aren't opposed to lower wage. Um, we understand that aspect of it, but that does not apply to our industry. This would, it would be a sledgehammer to a problem that we think doesn't need that.

You Mr. Colmore. So protectionism has served your industry well. Has it served your workers well? Excuse me, Protectionism has served your industry well. Has it served your workers well?

We think so because it allows to pay higher wages. So we get people in our industry, we don't see a lot of turnover in the, in the life sciences industry because of the specialized nature of it.

Isn't, isn't that the point is that these non-competes prevent turnover, which could be a healthy thing in a competitive market.

Um, I, from our industry's point of view, that is not a healthy thing because we sometimes

Talk at your workers' point of view.

I, I think the workers enjoy working on the long-term projects that they have. So it's not really, uh, a positive for them even in our industry because they get locked in developing a new drug, a new device, something like that. And the last thing they want to have is an employer coming after them because they leave and go to work for a competitor. And so, so they, Mr. Chair,

Thank you. And I, I don't know the answer to this question. Um, but, uh, do your, do your non-competes, generally speaking, do they all apply when someone is terminated?

Yes. So if someone leaves involuntarily, then they're subject to

An non-comp terminated. So if you, that implies they were fired Or, yes. I'm, I'm talking about when an employee leaves involuntarily, they don't necessarily want to go look for another job or they then immediately subject to the non-compete.

Yes, they are. And part of the reason for that is it's very easy if an employee wants out of a non-compete to misbehave, get fired so that they can act in that way. So yes, it would apply to those.

That's harder to reconcile.

Thank you representative. I have a quick question for you. Yes. Uh, you mentioned that you were involved, uh, early on with the, the current policy. Can you quickly summarize what you see as changing this bill doing to change that? What was established before?

Well, first and foremost, it eliminates non-competes for the majority of the people. I mean, 155,000 is a huge threshold. And so we negotiated a one year non-compete that we could utilize and it has to stay within certain bounds. I mean, there are limits to what it can apply to. You can't, you can't broaden it out. Uh, if someone's working for a medical device company, they go to work for a pharmaceutical company, it doesn't apply. Yeah. So there, we worked out those kinds of arrangements and the one year non-compete. But this bill would essentially eliminate non-competes, as you said, for everybody, but those who are in the C-suite.

Yeah. That was, that was a big deal because there was, there was a lot of companies doing non-competes for more than a year, two years. Right. Or even more so. It was just like one year. And which at the time seemed like it would be better than some of the other practices that were going on. Yeah.

So it was a compromise that we reached along with all the other provisions. And that construct has served us well for the last 10 years. And we'd really like to not have to go through that again.

Thank you Mr. Chair. I'll try to be brief. Uh, I, and I guess I just need to understand both from you and a, a past, uh, commenter, we're very specific that it does not apply to non-solicitation agreements, non-disclosure agreements and confidentiality agreements. So I'm just trying to wrap my head around how come a non-compete agreement is an issue?

One of the main problems with the others is enforcement. A non-compete is much more easily enforced than the others. And that is a big tool. And so yes, there, if you have a non-solicitation that helps you to avoid having your employees taken from you. If you have a non-disclosure, you can say, Hey, you know, you can't disclose what you learned here. But then how do you prove that? How do you know that they didn't tell that competitor information? That's a very difficult thing to prove. And so you get into a situation where you say there's an assumption that if you go to work for a competitor, it's impossible not to disclose.

But on the side, on the other side of that, you have an employee that may not be happy where he is working and that he spent his entire life on what you are, what he's doing at his job. Now you're telling them that they cannot go work in that field elsewhere.

Well, in the life sciences, that's rarely true. I mean, in some respects you have, you have an engineer who's working on a medical device that doesn't prevent them to go to work for another company that does a medical device in a different field. We're talking about just the specific competitor that, that you would be dealing with.

Who is that determination up to?

Well, that, that would be up to the employer if they feel like they've gone to work for a competitor. I mean, everyone knows who their competitors are, so

Thanks, Mr. Chair. I'll be brief. Uh, and, and I'm, this is kind of a sensitive question, but I'm trying to understand this better. So, Mr. Lermore, you know, I'm speaking for yourself, but are people at the most senior levels of the organization also subject to this? Uh, that's the question. Uh, does it apply to everyone? Um,

You're talking about the non-compete agreements? That's correct. Oh, yeah. At the higher levels it's very common.

So even you or somebody at your level. Alright, thank you. Yeah.

You. Good afternoon. My name is Autumn Bega and I serve as corporate counsel for CHG Healthcare, which is helpful to give background. That is a company which hires recruiters.

Uh, we hire recruiters to connect healthcare providers with jobs in the healthcare sector. And I want to speak about, I'm grateful for this opportunity to speak. We will be speaking against the passage of the current version, although we are very grateful to Representative Clancy for the time that he's spent listening to our concerns and significant changes have been made to it. I'll start off with a, what are we not concerned about? We would agree as well that we don't have any concerns in this, uh, bill around protecting the most vulnerable workers. The bills prohibitions on non-competes for students and workers under 18, and we believe that those are reasonable as well as the one year duration. What I do wanna share is concerns around, and I'll specifically speak to the concerns I've heard around, well, can this be covered by a non-compete? How about a non-solicitation? What I wanna call out is that many organizations, including CHG, healthcare expense significant amounts of resources and workforce development. And I think that this bill is going to create unintentionally problems for that workforce development incentives to develop our workforces. CHG healthcare is one of the best employers. We have been ranked number four on USA today last year, and we have earned the spot for the 12th time for Fortunes 100 best companies. I can speak to, YCHG earns these awards. In my two years with the company, I've witnessed extraordinary investment in workforce development. On day one, employees are flown from across the state and country for a full week of intensive training. And then they receive continuous employment oppor opportunities for training, covering professional engagement, emerging technologies like AI and leadership development. These are areas that are not covered by these other provisions that we've discovered or talked about today. I'd love to answer any questions around have come up.

Thank you. Um, do you have a contract that says that when you train an employee and pay for that training, that they're responsible to reimburse you if they leave before a certain amount of time?

We do not. And actually I think that that would be more of a sledgehammer because what that would mean is that after we provided all of this training and education, we'd say, you now have this major bill with us. You can't go anywhere without paying. Or when you do leave, you have to pay that. Whereas with the non-compete, they actually have a lot of areas and sectors outside of the specific small industry that they can go and work.

So there is a tool available that you haven't used.

If we did, it would be a greater, it would, it would actually create a greater hardship for employees.

I mean, that's an opinion, but there is a tool available that you haven't used. Thank you.

Hello, uh, Mr. Chairman, members of the committee, thank you for your time. My name is Josh Brown. I am the COO of the Utah Manufacturer System, or excuse me, mu Utah Manufacturers Association. I also lived this 10 years ago. Uh, I don't want to go back and has, through what everyone has already said, I want to thank Representative Clancy. He has been fabulous in accommodating and continuing to work and has worked with many groups. Um, I've also seen a lot of these groups come up a little bit disjointed. Uh, large business coalition met this morning said, we need to be unified. We need to work together to help, uh, Representative Clancy move the bill as well as not create lots of pick and chooses, which tends to happen as we get late in the session. A couple points that I want to talk about. Um, I myself, I'm an engineer by background. I have worked in medical device. I have worked in mining. I have worked in food processing to name a few and have had non-competes. I've had patents that become the companies When I leave that employment, I, I have another point that Representative Thurston has asked a few times trade secrets or business secrets. And I'm looking at Representative Kyle 'cause he and I have both worked at a medical device, x-ray tube manufacturer. And there's many times where, hey, we are purposefully not patenting this. They have, they back in the day, uh, you know, a generation before Representative Kyle came up with an anode grounded high CT x-ray tube, very cutting edge at the time, there was a lot of things that were purposely trade secret. So we did not patent because we knew that reverse engineering could happen, could take place. I've had companies where I've left on garden leave where I had to sit and not work in that. So, you know, in that industry for a specific amount of time, I've also worked as a business improvement. They say expert, I would say, uh, lean six Sigma, master black belt. These are processes to help KPIs, how the, the process moves faster through the process, more efficient. You get more throughput, more yield. All those things are still suspect and subject to being taken elsewhere. All we ask that we continue working with a representative, he's been great. I believe there are still things that need to be done and at this time we would not support, but hope we can continue to do so. Thank you.

Hi, my name is Brian Bernard. I'm an employment lawyer for 29 years. Not quite as long as Lauren, uh, but let's be clear. Lauren is the expert on the employee union side, and I love her. I'm the expert on the management side for employers. 10 years ago, I spent, actually, it was two years that we studied this bill with rep, with Speaker Schultz. Now, and I, you know, helped talk through balance. We need the balance, we need discussions. All of these questions, I can't answer them in two minutes, but I would love to answer them. And we spent all of that time doing it. The other thing that I hadn't, hasn't been shared with you is what the legislature spent money on seven figures to spend this with the Cicero group to do the foremost and best non-compete research in the country. And it still is. And it's based on how Utah employers use non-competes. The abuse is not there. It's not in the numbers. 2000 employees, 1000 employers focus groups. All of these surveys were done. And you know, what's interesting is 74% of employees said that non-competes should be allowed when there's proprietary information involved. 74% of employees. Okay. Uh, I, I heard Mr. Peak talk about different things, uh, different surveys. That isn't the case here in Utah. 20% of the employees were under current non-competes. Out of the 2000 that were surveyed, only 40% of the employers used non-competes 10 years ago. All right, I hope you take this seriously. I have all kinds of answers for these questions that just demonstrates we need to follow the process like we did last time and engage. I appreciate that the legislation is no longer a sledgehammer, but it's a hammer. It's not a scalpel. And there are workable ways to get to where you want to get to, but we need some time to have that discussion.

Any questions? I would love Mr. Or Representative Thurston's question?

No, Really. Okay.

I am doing that right now. Thank you. Uh, my name is Melissa Hinton. I'm a doctorate nurse practitioner down in Southern Utah. And I wanna speak to this bill for, um, some specific things. Number one, uh, my personal experience has been, uh, working in a non-compete. I worked for an employer for 10 years. Uh, there wasn't really any proprietary secrets, but because it was common in, uh, law for contracts, I, I was under a non-compete when I left the business. That meant that I could not practice anywhere within a 30 mile distance of any existing, uh, part of their company. And in southern Utah, I'm in St. George. They also had a clinic in Cedar City. They had one in Richfield, they had one in Kanab, they had one in Nevada. So what that would've meant would be that I had to entirely leave my industry, which would also leave a number of healthcare, uh, issues for the patients that I was leaving. Or I would have to remove my family of seven on my income to another town. And in this case, it would've been more than 200 miles away. So I want to say that when we're looking at non-competes, there are some very significant, um, and in even economically disastrous things that can happen to an employee, I understand that every employer needs to have, um, some protections. And I do agree that there are some other ways that we can protect employers, but for me, I literally had to leave that sector of industry in which I specialize, which is substance abuse and addiction recovery and pain management. So when we're really looking at this from a global perspective for all Utahans, we're actually causing more destruction on the employee side. And I do think that, um, offering economical, uh, upward movement is important to our legislature and to all Utahans. Thank you for the time to speak.

No, you, you got it exactly right. Thank you very much. And I appreciate all the time here today from the committee. Uh, you know, I know it's getting long. So my name is Caleb Tut, and I'm speaking today as a representative from Veeva Systems. Veeva is a company that provides cloud software, data and consulting services to primarily the life sciences industry. Um, among other critical functions to the industry. Our technology solutions help life sciences companies run clinical trials more efficiently, maintain quality manufacturing processes, monitor drug safety, that kind of stuff. Um, Veeva was founded in 2007. We went public in 2013, and today Veeva employs well over 8,000 people in high paying tech jobs around the country and the world. Our market cap is around 36 billion. So, regarding non-compete agreements, I would like to offer business perspective, maybe different to one, some of the ones we've heard today about why non-competes are so harmful to business and broadly the economy. So why a bill like HB 2 0 3, which limits the use of non-competes is, is so important. So, because non-competes most acutely impact competition between firms in the same industries, they actually, from a bigger picture help entrench market leaders and harm consumers. Clearly, non-compete agreements are contrary to free and vigorous competition. I mean, we've talked about that today. So if we consider Silicon Valley as a case study for what eliminating non-competes can help enable California's longstanding ban on non-compete agreements has show that the free flow of talent actually adds to the pace of entrepreneurship. It adds to startups, it adds to job growth. And it's proven that the movement of talent can help create the most innovative companies and products in the world. And it can advance the overall economy. And there's every reason to believe that Utah will experience a similar boost in innovation. I know it's doing really, really well. But to experience a boost in innovation and unlock its potential by eliminating non-competes. And on a personal level, Veeva was founded in California. Should non-competes have been allowed there like they are in Utah today? Veeva would not exist. I think this is an important story. We are our existence, all these thousands of jobs to a non-compete ban. We believe in the power of individual freedom and not an unequal balance of power that non-competes usually give to the employer and industry over the employer, over the employee. So once again, thank you very much. I know it's gotten long. I appreciate the opportunity to comment.

Yeah. My name is Caleb Tuan. I'm with Veeva Six Systems Inc. Which is a tech company based in California, but has offices all over the country and employees all over the country as well.

I I am actually in Maryland today.

Thank you, Mr. Chair. Make a motion that we adopt for substitute HP 2 0 3.

I, I appreciate the motion. Thank you. And to the maker of the motion. Okay.

Yeah, I was gonna make the motion, Mr. Chair. But I will say, practically I have seen, uh, low paid, uh, employees. A good example would be in the skilled nursing industry. I've seen CNAs who give, uh, bed baths and, and change bed pans, uh, under subjective to these kinds of agreements. And it's ludicrous, uh, it shouldn't be used in these cases. And so I support the motion to adopt first substitute.

Yes, sir. Mr. Chair, I'd like to, uh, make the motion that we favorably pass out for substitute house bill 2 0 3.

Thank Mr. Chair. Um, this is what happens when economists think about lawyer problems. You get great answers. Uh, I have a statement here that I'm just, just very brief from the FTC document. Today, at least 30 million Americans are impacted by non-compete clauses. Many of these non-competes, to be clear, would likely be unenforceable in court. As such, they are scare tactics. They're scare tactics designed to take advantage of working people who don't have the money to get a lawyer to tell them this, this is exploitation. It is predatory and it's morally wrong. It is an abusive tactic that makes life less affordable for the people who, who form the backbone of this country. And I think this bill goes a long way at restoring the balance of power to people who want to compete by looking for a better job. And by having that mobility, uh, we've also heard a lot of confusing statements from the employers that say, well, we can't do this because we can't protect our trade secrets. Well, we don't know what our trade secrets are. We don't know how to define them. We don't know what, how we would detect if they were overused. Uh, and that's their problem. The problem is, is that what they're doing is morally wrong. It's hurting the backbone of our country, and we need to send a strong message that it needs to stop. Thank you, Mr. Chair.

Thank you, Mr. Chair. Um, I agree with Representative Thurston. Um, I recently had a family member reach out to me that, um, essentially is a, an executive assistant, you know, receptionist person who said that their company's asking them to sign an non-compete. As I looked at it, I thought, you know, I, I don't think this would be enforceable in court. That being said, most people would sign that, and then they're, they're beholden to that employer, right? They use it to, to keep them in that job and, and not allow them the freedom and mobility that we want, that that free market, um, that we have, uh, in our state. In fact, I was looking at some of the debate back when we, um, as a legislature debated this, um, with the last compromise that it seems like everyone was, was pretty comfortable with. And there was a statement from, uh, speaker Schultz who said, I, I don't know how you can put free market and non-competes in the same sentence. It just doesn't compete. Um, and so I, I definitely agree that there is a problem here to be solved. That being said, I, I have no idea where the line should be drawn. I I tend to tend to agree that maybe this is a little too far down the road, and that there is some, um, negotiations yet to be had that should be, had to get this in a place that isn't going to affect our businesses. It's not going to affect our ability to recruit companies, um, to our state and, um, and, uh, ensure that we continue to stay, you know, the number one state for economic outlook and mobility and such. Um, and so I, I will vote in favor of this today, um, and hope that, uh, the good sponsor here will continue to work with these companies to find a common ground that can protect the, the type of people like my family member that should never have to sign and non-compete. And in those cases where it actually makes sense.

Yes. I, I'm going to, uh, not be supporting this to be passed out. I think there needs to be some work with, with companies and businesses to find the right balance between it. I recognize the work that was done 10 years ago, but also recognize we have a, a modern, uh, businesses and things today. But I just think it's, it's not quite ready for the house floor. Thank you.

So I am going to make, uh, some, give some thoughts from my perspective. Um, I see it from, I see it on both sides. I have been on both sides of this issue. And, uh, in, uh, the last company I worked for, I was one of the executives and had to implement a conflict of interest program, I guess is what you would call it. And try to get all of our employees to sign, sign it. And, uh, I was the first one to sign one, so I could be a great example to all the other employees. And, uh, uh, then the, the legislation that we've referred to before, that was about 10 years or so ago, um, kicked in and we had to modify it. 'cause it, we had it, I think it was 18 months or something. And, uh, uh, and I, that was a terrible process. I hated doing it, uh, didn't like it. And the next thing I know, I'm, uh, not working there anymore and I'm looking for work. And I decided to start my own business. And, uh, come to find out I'm under this non-compete clause. And, uh, uh, it was all amicable. Um, I had, and the issue there was less trade secrets and more of clients. We didn't want people going out and stealing clients and stuff like that. And, uh, and we actually had incidents where, uh, people who signed a non-compete left, and then they tried to steal information, data from our old firm for their new firm. And it was really interesting to watch. And that was where it was like, I see the importance of a non-compete. Um, but then when I was trying to start up my own business, like we've talked about, I was trying to get new clients and a lot of, a lot of clients that I'd worked with under my old employer, uh, wanted to come work, come be, have my services. And so, uh, I became, in those situations, beholden to my old company. I had to go like, ask per for permission. And it was amicable because, uh, they were always willing to talk and work it through, and we were able to do that. So in that regard, it was good. But I swore that I would never, ever, ever sign a non-compete. So I like a lot of people here, I don't know where the line is, but, and I can see it from both perspectives, but it just seems like anytime these are there, it's bringing, it's causing problems. So that's where I'm at. Uh, I, I plan to support the bill, but I just want to get that on the record and just let everybody know this is not an easy thing, and it's one side or the other. It's just not easy. So, uh, that's enough said for me.

Thank you, Mr. Chair. I appreciate all the work that the committee's done. Hearing this out, I think you see where I'm at. You know, me all, you know, my character. I'm not trying to hide the ball, just trying to move the ball down the field and, and make our economy a a better place for everyone. And I think that we can do that here. It's point well taken by members of the committee who share that they'd like to see this improve along the way. And that's what I certainly intend to do. Mr. Chair,

Thank you, Mr. Chair. Uh, I think it's a good bill. I, I know this, uh, sponsor he's gonna work with, uh, with business. We, we don't want to impede business. There are some protections on line 78 to 82, but I think this is something that needs to be addressed, uh, where I've seen it at such low levels being implemented. We know that there are some out there who are not acting in good faith. So I would appreciate your vote on this bill.

First substitute House bill 2 0 3. Non-compete amendments by Representative Clancy. This bill was heard in business labor with a vote of 10.

Thank you, Mr. Speaker. Motion to lift house first substitute hospital 2 0 3 from the house. Third reading calendar, back to the rules committee.

Sir. Uh, the motion is to lift first substitute house bill 2 0 3 from the third reading calendar and send it back to the House Rules Committee.

Yes, Mr. Speaker, uh, colleagues, this, this bill has been a multi-year, over a decade long debate. Um, we, uh, we are still working on getting to a place with the business community and the broader, uh, business interests of Utah in finding the right path forward. It came, it, it was clear that during this session we would not be able to find that path forward. And so in the interest of process and making sure that we're getting this right for the citizens of Utah, we are going to continue to study this item and work hard together to find a good resolution moving forward in the next couple of years.

Waive. Thank you, Mr. Speaker.