Non-compete Agreements in Colorado a New Era
| Jurisdiction | Colorado,United States |
| Citation | Vol. 51 No. 10 Pg. 30 |
| Pages | 30 |
| Publication year | 2022 |
A New Era
BY KATHERINE M.L. PRATT, ADAM P. O'BRIEN, AND CHELSIE L. SMITH
This article discusses the current scope of the non-compete statute and enforceability of non-compete agreements. It also provides related considerations for both workers and employers.
The use of non-compete agreements by employers in Colorado is a perennial and thorny issue for Colorado employers and employees—and the lawyers who represent them. Extensive amendments to the non-compete statute, including new criminal and civil penalties, have complicated the playing field even more. Many unanswered questions remain regarding how courts will evaluate non-compete agreements and enforce related criminal and civil penalties in light of the recent amendments, which became effective August 10, 2022. This article provides an overview of Colorado's non-compete statute and offers practical tips for employers and employees considering a non-compete agreement.
Types of Non-Compete Agreements
Colorado has long prohibited most agreements restricting an employee's ability to engage in any lawful occupation and receive compensation for work performed.[1] Colloquially, these agreements are known as “non-competes,” though they often include one or more broader restrictive covenants that (1) prevent a former employee from working for a competitor for a particular amount of time; (2) prevent a departing employee from soliciting other employees to join them in moving to a competitor; or (3) prevent employees from disclosing a former employer’s proprietary information.
State law typically governs non-competes. The question of which state's law applies is ordinarily governed by the law of the state where the restraint will be imposed—usually the state where the employee primarily lives and works. Policy considerations surrounding non-competes include the state's public policy protecting the mobility of its workers, the nature of the former employer's business interests, whether a specific amount of consideration was given for the restriction, and the scope of the restrictions. Restrictions tailored for both duration and geography are viewed more favorably by courts. In general, non-compete agreements are void under Colorado law, with limited exceptions.
The amended non-compete statute significantly limits the enforceability of non-compete agreements and post-termination restrictions that apply to workers primarily working and living in Colorado. Under the recent amendments, if a worker primarily resides and works in Colorado as of the date of their termination, the non-compete or non-solicitation agreement cannot require adjudication of the enforceability of such agreement outside of Colorado.[2]
Additionally, while the statute does not explicitly address independent contractors, the amended statute protects “workers” instead of “employees.”[3] As a result, the amended statute likely will apply to independent contractors, consultants, and other individuals who perform work for another.
Summary of Colorado's Non-Compete Statute
Colorado law makes it unlawful “to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit.”[4] With a few exceptions, Colorado non-compete and non-solicitation agreements are now generally void unless they apply to “highly compensated” employees who meet certain salary requirements, are for the protection of trade secrets, and are not broader than reasonably necessary for the protection of trade secrets.[5] This replaces the provision in the statute that previously allowed non-competes for executive and management personnel and their professional staff (with no compensation restriction).
The salary thresholds for “highly compensated” workers are set by Colorado’s Department of Labor, increasing proportionately for inflation. A non-compete agreement can only be enforced against a worker who earns at least $101,250 annually (or the adjusted salary threshold then in effect). A non-solicitation agreement is only enforceable against a worker who earns at least 60% of the “highly compensated” threshold (currently $60,750), both at the time the agreement is entered into and at the time it is enforced.
In addition, the following four covenants are allowed:[6]
■ A provision providing for an employer’s recovery of the expense of educating and training a worker where (1) the training is distinct from ordinary on-the-job training; (2) the employer’s recovery is limited to the reasonable costs of the training and decreases over the course of the two years subsequent to the training proportionately based on the number of months that have passed since the completion of the training; and (3) the employer recovering for the costs of the training would not violate the Fair Labor Standards Act, 29 USC §§ 201 et seq., or article 4 of title 8.
■ A reasonable confidentiality provision relevant to employer’s business that does not prohibit disclosure of (1) information that arises from the worker’s general training, knowledge, skill, or experience, whether gained on the job or otherwise; (2) information that is readily ascertainable to the public; or (3) information that a worker otherwise has a right to disclose as legally protected conduct.
■ A covenant for the purchase and sale of a business or the assets of a business.
■ A provision requiring an individual working in an apprenticeship to repay as scholarship if the individual fails to comply with the conditions of the scholarship agreement.
Because non-compete agreements are disfavored in Colorado, the exceptions are narrowly construed.[7]
Notice Requirement
The new statute voids any non-compete agreement where the employer fails to give the employee proper notice of the agreement along with a summary of the agreement's restrictive terms.[8] For prospective workers, the notice must be provided before the applicant accepts an offer of employment.[9] For current workers, the notice must be given at least 14 days before the earlier of either (1) the effective date of the non-compete agreement, or (2) a change of the condition of employment...
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