Chapter 19 - § 19.4 • NON-SOLICITATION
| Jurisdiction | Colorado |
The Colorado legislature has taken a clear position on covenants not to compete and on enjoining the use of trade secrets by former employees. Less clear, however, is the right of employers to prohibit former employees from soliciting customers or other employees. Colorado courts have been grappling with these disputes for at least 100 years.8
Employers often attempt to prohibit solicitation of customers and employees through written contractual means, and by enjoining such conduct through common law causes of action such as breach of fiduciary duty, tortious interference with contract and prospective business advantage, and "employee raiding." Likewise, the Colorado Uniform Trade Secret Act is frequently used as a statutory basis for seeking to enjoin solicitation of customers or employees.
§ 19.4.1—Contractual Prohibition Of Solicitation
Non-solicitation clauses, while not a per se direct ban on competing against a former employer, often have a similar effect. For this reason, employers frequently include such clauses in their employee handbooks or employment agreements.
The clauses often are drafted to prohibit the solicitation of clients or customers of the employer: "In the event of termination of my services with [Company] for any reason, I will not solicit, for a period of one year from the date of termination of my employment in any community or city served by the office of [Company], or any subsidiary thereof, at which I was employed at any time, any of the clients of [Company] whom I served or whose names became known to me while in the employ of [Company]."9 In addition, non-solicitation clauses are frequently drafted to preclude the solicitation of former co-workers: "I agree that I shall not for a period of one year following the termination of my relationship with the Company . . . either directly or indirectly . . . solicit, recruit or attempt to persuade any person to terminate such person's employment with the Company. . . ."10
The concept of contractually prohibiting former employees from soliciting customers or employees is not new. Colorado employers have been utilizing such clauses for years, and employees have been challenging them in court just as long. Prior to the passage of Colorado's statute against covenants not to compete, such non-solicitation clauses were typically upheld if reasonable in their terms.11
As described earlier in this chapter, in 1973 Colorado's legislature passed a statute prohibiting covenants not to compete and establishing a strong public policy against such restrictions. After the passage of this statute, it has become increasingly more difficult for employers to enforce contractual non-solicitation clauses. However, the current state of the law in Colorado with regard to the enforce-ability of such clauses is unclear.
In National Graphics Co. v. Dilley, 681 P.2d 546 (Colo. App. 1984), the employer sought injunctive relief to enforce a clause that prohibited the former employee from "directly or indirectly, solicit[ing] any accounts that were obtained (through the efforts of employee, employer, or any other person) during her employment with National Graphics Company." The court referred to the clause at issue as a "noncompetition clause." Id. But neither the trial court nor the court of appeals struck down the clause as being void under C.R.S. § 8-2-113. Instead, the court of appeals held that the clause was not facially void but was unenforceable because it was not reasonable as to duration and geographic scope, as the agreement lacked any mention of either. Id. at 547. Thus, it would seem that a well-drafted non-solicitation clause, reasonable in its terms, should be enforceable.
Four years later, the court of appeals addressed a similar clause in Management Recruiters of Boulder v. Miller, 762 P.2d 763 (Colo. App. 1988). There, the employment agreement included a one-year prohibition against "contact[ing], in any manner whatsoever, in the course of the search and recruiting business wheresoever said business is situated, any candidate or employer-client with whom the Account Executive had contact with or access to during the twelve (12) months immediately preceding the effecting date of termination of this Agreement." Id. at 764. The trial court held, and the court of appeals agreed, that the clause was subject to C.R.S. § 8-2-113(2), but was not void because it fell within the exception for protection of trade secrets. In this case, the trade secret was the information regarding the candidates. Id. at 764, 766.
The clause was ultimately enforceable only to preclude solicitation of candidates with whom Miller had actual contact within the preceding year. Id. To prohibit the broader solicitation requested by the employer — any candidate or employer-client with whom Miller had contact or access to — would have effectively rendered him unable to compete in that field at all, Miller argued. The court seemingly agreed, as it held that the redefined restriction was enforceable because it was narrowly construed to insure that the restrictions were limited to protecting trade secrets. Id. Thus, unlike National Graphics, the Management Recruiters court found that C.R.S. § 8-2-113(2) did apply to the non-solicitation clause and would have rendered it void but for the applicability of the trade secret exception. See also Haggard v. Synthes Spine, 2009 U.S. Dist LEXIS 54818 (D. Colo. June 12, 2009) (court adopts Management Recruiters approach and reforms non-solicitation covenant to prohibit solicitation of customers with whom former employee had actual contact during prior employment).
In 2001, the Colorado Court of Appeals issued its decision in a key case regarding non-solicitation clauses, Atmel Corp. v. Vitesse Semiconductor Corp., 30 P.3d 789 (Colo. App. 2001). Atmel involved the enforcement of a clause restricting, for one year, former employees from "either directly or indirectly . . . solicit[ing], recruit[ing] or attempt[ing] to persuade any person to terminate such person's employment with the Company." Id. at 793. The trial court held the clauses did not violate C.R.S. § 8-2-113(2) because they did not prohibit the former employees from working for the competition. The trial court therefore issued an injunction prohibiting the former employees, who had left to become managers with a competitor, from any participation in the hiring process of Atmel employees. Id. at 792.
The court of appeals held that the trial court's injunction was too broad and reformed the injunction to preclude only the former employees' initiation of contact with current...
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