Colorado's Non-compete Statute Q&a What Employers Need to Know

• Publication year: 2023
• Pages: 34

Colorado's Non-Compete Statute Q&A What Employers Need to Know Vol. 52, No. 2 [Page 34] Colorado Lawyer March, 2023

This article helps employers understand how changes to Colorado's non-compete statute affect existing and future restrictive covenant provisions.

The Colorado legislature's significant changes to the state's noncompetition and restrictive covenants statute became effective on August 10, 2022. The Restrictive Employments Agreement Act (Act)^[1] is a major overhaul of CRS § 8-2-113, which enshrines Colorado's restrictive covenants restrictions. Previously, the statute only expressly addressed non-competes. Now, the statute addresses restrictive covenants more broadly, including not only non-compete clauses but also provisions addressing the non-solicitation of business and customers, confidentiality provisions, and reimbursement for training and education costs. A previous Colorado Lawyer article summarized the new provisions and addressed related considerations for both workers and employers.^[2] This article answers common questions about employer compliance and liability under the new provisions.

What Are the Main Changes?

Among other changes, the Act inserted notice requirements to the statute and compensation thresholds that must be satisfied for certain restrictive covenants to lawfully encumber a worker. An employer's failure to comply with the notice provisions may result in not only a void restrictive covenant agreement but also potential enforcement of remedies provisions, including statutory penalties, attorney fees, and damages and costs available to aggrieved job applicants and workers.

Employers with Colorado workers are now juggling the legitimate business needs of protecting their confidential and trade secret information against the legislature's public policy encouraging the free flow of workers (particularly those earning lower wages).

" In effect, employers now may only impose non-competes on workers earning over the salary threshold who have access to actual trade secrets and who could legitimately use the trade secrets to improperly compete."

When Is a Non-Compete Allowed and What Does a Compliant One Look Like?

As an initial matter, the Colorado legislature has removed the management and executive personnel exception for non-compete covenants and augmented the trade secrets exception with an additional compensation requirement. Under the new rubric, a non-compete covenant is only permissible with a worker or prospective worker who, at the time the non-compete is entered into and at the time it is enforced, earns an amount of "annualized cash compensation" (as defined and described in the statute)^[3] equivalent to or greater than the threshold amount for highly compensated workers. This amount is determined annually by the Colorado Department of Labor and Employment, Division of Labor Standards and Statistics (Division) via its publication and yearly calculation of annual labor compensation order (PAY CALC Order). The Division's 2023 PAY CALC Order sets the current salary threshold at $112,500.^[4] To be valid, the non-compete agreement must also be for the protection of trade secrets and can be no broader than reasonably necessary to protect the employer's legitimate interests in protecting trade secrets.^[5] In effect, employers now may only impose non-competes on workers earning over the salary threshold who have access to actual trade secrets and who could legitimately use the trade secrets to improperly compete.

What About Non-Solicitation of Customers/Business Covenants?

Non-solicitation of customer and/or business provisions are now explicitly contemplated by the statute—another big change. Non-solicitation covenants are only valid and enforceable against workers who earn 60% of the threshold amount for highly compensated workers ($67,500 for 2023). Further, the trade secret requirement remains—the non-solicitation covenant may not be broader than reasonably necessary to protect the employer's legitimate interest in protecting trade secrets.

What Are the New Rules for Other Types of Restrictive...