Colorado Non-Compete Law: Important Changes

In August 2022, significant changes to Colorado’s non-compete and restrictive covenants became effective with the Restrictive Employments Agreement Act. In a nutshell, the new statute made it much more difficult for employers to enforce non-compete agreements unless a worker earns over a certain salary and has true access to trade secrets and could use those trade secrets to unfairly compete. 

For employers, this means much more careful drafting and wording of non-compete agreements and confidentiality/non-disclosure agreements, more careful consideration of which workers have actual access to trade secrets, and providing proper notice to workers. 

For workers, it’s extremely important to be overly diligent in reviewing any non-compete agreement offers, and to understand how the new statute applies to them. But first, a quick review of non-compete agreements. 

Breaking down non-compete agreements

Universally speaking, a typical non-compete agreement will include one or more of the following restrictive covenants:

• Former employees may not work for a competitor or open a competing business for a specified amount of time;
• Former employees may not solicit current employees or clients to follow them to a competitor;
• Former employees may not disclose or use a former employer’s proprietary information.

Colorado has historically disfavored restrictive non-compete agreements while supporting employee and contractor rights to lawful occupation and compensation for work performed. In general, non-competes have been found void under Colorado law unless they meet certain requirements. The amended statute governs the enforceability of non-compete agreements for workers primarily living and working in Colorado at the time of the termination of employment even if the contract specifies it is governed by the laws of another jurisdiction.

With the recent changes, certain salary and compensation thresholds must be satisfied for employers to hold workers (employees or contractors) to any restrictive covenants. Now, non-compete agreements are void unless they apply to “highly-compensated” workers earning an annual salary of $112,500 (or the adjusted salary threshold in effect). Non-solicitation agreements can only be enforced for workers earning at least 60% of the highly-compensated threshold ($67,500 at the time of this writing). 

This provision stands for when the parties enter into the agreement and for when it is enforced. 

Additional allowed covenants:

• Employers may recover the expense of educating and training a worker where the training is distinct from ordinary on-the-job training. Recovery is limited to the reasonable costs of the training and decreases over the two years following training, based on the training completion date. (Cost recovery does not violate the Fair Labor Standards Act.)
• Reasonable confidentiality provision relevant to the employer’s business that does not prohibit disclosure of:
  • Information that arises from a worker’s general training, knowledge, skill or experience (gained on the job or elsewhere)
  • Information that is publicly available.
  • Information a worker otherwise has a right to disclose as legally protected conduct.
• Covenant not to compete related to the purchase and sale of a business or business assets.
• Requirement for an individual working as an apprentice to repay a scholarship if the individual fails to comply with the conditions of the scholarship agreement.

Notice Requirement: Employers must give workers proper notice of an agreement as well as an accurate summary of the agreement’s terms and restrictions. For prospective workers, this notice must be given before the applicant accepts an employment offer. For current workers, notice must be given 14 days before either the effective date of the agreement or a change in the employment conditional to the agreement. 

Notices must be standalone, meaning not included in a general policy or handbook or even a provision in an employment contract. And workers must sign the notice.

Provisions for physicians: The new statute treats as void non-compete agreements for physicians except that it is legal to require the payment of reasonable liquidated damages in connection with the termination of the physician’s relationship with its employer or practice. The new statute also allows physicians to disclose their new professional contact information to any patient with a rare disorder whom the physician was already treating under a previous agreement. 

“Workers” instead of “employees”

An important clarification in the new statute is that it refers to “workers” rather than just “employees,” meaning that the courts are likely to continue their practice of applying the statute to independent contractors, consultants and other individuals who perform work or services will also be affected by the changes.

Evaluating non-competes – important considerations for workers:

• Is employment status subject to a non-compete agreement and what is the full scope of that agreement?
• Am I subject to restrictions around the purchase and sale of a business or its assets?
• Does my employment expose me to trade secrets and does my contract require protection of those secrets?
• If I am employed for less than two years, does my employment provide for recovery of education and training expenses?
• If my employer is covering training expenses, will I be required to repay those expenses if I leave before a certain time period?
• Is partial ownership interest being offered as a consideration for a non-compete?
• What can I do if I am being asked to sign an illegal non-compete agreement?
• Should I have an independent counsel review the contract and offer advice?

Recourse for workers

According to Colorado law, it is unlawful for employers 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.” 

If an employer offers a worker a non-compete agreement that seems questionable, it is absolutely within the worker’s rights to have an experienced attorney look over the agreement. 

Potential liability for employers

Starting in 2022, a violation of the non-compete restrictions of Colorado’s non-compete statute is classified as a class 2 misdemeanor, which could lead to up to 120 days in prison and/or a $750 fine. Employers who violate Colorado’s non-compete law are liable for actual damages and a penalty of $5,000 per worker or prospective worker harmed by the conduct and may also be liable for attorney’s fees and costs.

We can help with non-compete evaluation

At Hackstaff, Snow, Atkinson & Griess, we have the knowledge and expertise to evaluate non-compete and non-solicitation agreements and ensure that they comply with the new statute’s provisions and restrictions. We can also clarify your rights and obligations when it comes to protecting trade secrets and the enforceability of non-competition contracts. Contact us today for a free consultation!