Colorado recently passed a new bill which is expected to be signed by Governor Polis. The bill makes significant changes to Colorado statute 8-2-113 regarding non-compete agreements. This bill has also added some additional limits on confidentiality agreements as well as non-solicitation agreements. It has provided new penalty and enforcement mechanisms. These changes are going to significantly affect Colorado law in this area.
As you know, Colorado statute provides that non-competes are void in Colorado unless the non-compete falls into one of the statutory exemptions. Those exemptions were non-compete agreements in connection with the sale or purchase of a business; non-competition agreements for the protection of trade secrets; contractual provisions governing recovery of training or education expenses for an employee who has stayed for less than two years and covenants relating to employees who are management or executive employees.
The new statute keeps the exemption for covenants in connection with the sale of a business, but eliminates the exemption for management and executive employees. It imposes a minimum salary threshold of $101,250.00 per year in 2022 or an annualized amount of that salary if the employee is employed for less than the full year. For employees who meet the highly compensated salary requirements, if the non-compete is for the protection of trade secrets and the covenant is no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets, the covenant may be allowable.
The new bill allows a covenant not to solicit customers for employees who earn at least 60% of the highly compensated threshold amount. That non-solicitation covenant can be no broader than necessary to protect the employer’s legitimate interest in protecting trade secrets. Currently that means that employees who earn at least $60,750.00 annually can be subject to appropriately narrow non-solicitation agreements.
The bill does allow for the recovery of education and training expenses over the course of two years although it narrows the definition of training to exclude on the job training.
The bill adds confidentiality agreements to the statute. Previously Colorado did not limit the use of confidentiality agreements as long as it did not attempt to protect information that was in the public. The confidentiality agreement must not prohibit disclosure of information that arises from the worker’s general training, knowledge, skill or experience, whether gained on the job or otherwise, information that is readily ascertainable to the public or information that the worker has a right to disclose as legally protected conduct.
The bill also allows for recovery of scholarship provided to an individual working in an apprenticeship if the individual fails to comply with the conditions of the scholarship agreement.
The bill also states that even if otherwise acceptable, the covenant will be void if the employer does not provide notice of the terms of the non-compete to a prospective worker before the worker accepts the offer of employment or to a current worker at least fourteen days before the earlier of the effective date of the covenant or the effective date of any additional compensation or change in the terms and conditions of employment that provides consideration for the covenant.
The notice must be separate from any other covenants and in clear and conspicuous language. It must also be signed by the worker. There are additional requirements in the statute for how the notice must be given. It is important to note that the notice must contain language notifying the worker that the covenant may restrict their options for subsequent employment and specifically identifies there those restrictions are.
Non-competes for physicians are also void, although the statute continues to allow damages to be recovered related to competition.
This law applies to all workers who at the time of termination primarily resided or worked in Colorado. It prohibits employers from requiring the worker to adjudicate the enforceability of the covenant outside of Colorado.
Enforcement of this statute is also expanded. Any person who uses force, threats, or other means of intimidation to prevent a worker from engaging in any lawful occupation commits a misdemeanor under this statute. An employer can be liable for actual damages and a penalty of $5,000 dollars for a worker harmed by this conduct and get injunctive relief. The statute also provides that a worker or prospective worker can recover actual damages, reasonable costs, and attorney’s fees in any action under this section.
If an employer’s act or omission was in good faith and the employer had reasonable grounds for believing that the act or omission was not a violation of this section a court may elect to not award a penalty.
This statute is expected to be effective August 10, 2022 and will apply to all covenants not to compete entered into or renewed on or after the effective date of this statute.
Practice Pointers:
- Review all non-competition agreements to determine if they comply with this statute
- Review all non-solicitation agreements to determine if they comply with this statute
- Review all confidentiality agreements to determine if they contain the language reflected in the statute
- Before asking any prospective or current employees to sign a non-compete, consult with counsel.
Before seeking to enforce any non-compete, consult with counsel.