First, what changed?
Previously, Colorado law prohibited restrictive covenants unless they were related to:
- Contracts for the sale of a business;
- Contracts for protection of trade secrets;
- Agreements to recover expenses related to education and training;
- Agreements with executive and management personnel, officers, and professional staff to executive personnel.
With the new amendment, post-employment non-compete agreements, including customer non-solicitation agreements, are banned. However, there are a few exceptions.
What is permitted under the amendment?
Post-employment non-compete agreements are now only enforceable against “highly compensated” workers making $112,250 or higher in 2023. Salary thresholds will increase each year. The high-earning threshold must exist at the time the agreement is entered into and at the time the employer seeks to enforce it.
Stipulations also maintain that the purpose of the non-compete agreement is to protect trade secrets and that the agreement is not broader than “what is reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.”
Customer non-solicitation agreements are allowed only for employees earning 60% or more than the highly-compensated worker threshold (currently $67,500 per year or more). As with the high-earning threshold, this amount will increase each year. Note that the law does not reference limitations on employee non-solicit covenants.
What else should employers know?
Employees who primarily resided and worked in Colorado at the time of termination cannot be required to adjudicate the dispute outside of Colorado, and Colorado will presume that Colorado law governs the agreement.
For new hires, employers must provide a notice of the non-compete agreement before the employee accepts the job offer.
In comparison, for current workers, employers must provide notice of a new restrictive covenant at least 14 days before the effective date of the restriction or change in condition of employment.
In both cases, the notice must be in “clear and conspicuous terms in the language in which the worker and employer communicate” and must be signed by the employee. The signed notice must be a separate document than the covenant conditions, meaning that employers will need both a signed notice and a covenant agreement.
Failure to comply with the notice provision will void the agreement.
What are the penalties?
The amendment provides that employers who attempt to enforce, enter into, or present non-compete agreements to employees or prospective employees outside of the conditions above may be liable for actual damages and a penalty of $5,000 per employee harmed. Violators are also liable for any attorneys’ fees and costs. Actions may be brought by the Attorney General, Division of Labor Standards and Statistics, or through private right of action by the worker.
While the statute does not reference specific limitations on covenants with independent contractors, the language of the amendment references “workers” rather than employees. There may be additional guidance on this in the future.
Is the amendment retroactive?
No. The amendment went into effect on August 10, 2022, but is not retroactive and will not affect the validity of any non-compete agreements entered into prior to that date. However, it may affect the enforceability of certain provisions, as the amendment requires that employees meet the statutory compensation threshold at both the time of signing and enforcement.
The law also expressly states that it will not affect existing state or federal case law in effect regarding the reasonableness of the scope of non-competes and non-solicits.
What about confidentiality & non-disclosure agreements?
Reasonable confidentiality and non-disclosure agreements remain valid in the state of Colorado, but are permitted as long as they do not prohibit the disclosure of:
- Information gained from the worker’s general training, knowledge, skill or experience.
- Information that is readily available to the public.
- Information that the worker otherwise has a right to disclose.
Are there any other agreements addressed?
The amendment permits restrictive covenants in agreements for the purchase and sale of a business, agreements providing for recovery of training and education expenses, and agreements for the repayment of a scholarship provided to a worker if the individual did not comply with the terms of the scholarship.
Contact Us to Discuss Your Legal Needs
Hackstaff Snow Atkinson & Griess, LLC provides strong, experienced counsel to businesses regarding labor and employment law. Our attorneys have the experience to assist you in ensuring your non-compete and non-solicitation agreements are in full compliance. Reach out to our legal team to schedule a consultation.
