Non-compete agreements are used to attempt to restrict a company’s employees and independent contractors from engaging in competitive activities with that company. Non-solicitation agreements are a form of non-compete agreement which are specifically tailored to attempting to restrict a former employee or independent contractor of the company from soliciting and/or otherwise engaging in business with a company’s current or prospective customers. Many people our Denver employment lawyers encounter wonder “Is a non-compete enforceable in Colorado?”
Are non-solicitation agreements enforceable in Colorado? Read this Colorado contract law blog to learn more.
In Colorado, non-compete and non-solicitation agreements entered into after August 9, 2022 are more difficult to enforce than those entered into before that date. For non-compete agreements entered into after August 9, 2022, unless the non-compete agreement concerns the sale of a business, a physician, or the recoupment of expenses incurred in educating and/or training a worker: (a) only highly compensated persons making (as of 2022, at least $101,250 a year and as of 2023, at least $112,500 a year) can be asked to sign a non-compete agreement; and (b) only persons compensated (in 2022, at least $60,750 a year and in 2023, at least $67,500 a year) can be asked to sign a non-solicitation agreement. If a person earns less than the above limits, and the non-compete and/or non-solicitation agreement in question does not concern the sale of a business, a physician or the recoupment of expenses incurred in educating and/or training a worker, it is illegal for an employer to require a worker who primarily works or resides in Colorado to sign such an agreement. Note that the above dollar limits are subject to change each year depending on the Colorado Department of Labor’s calculation as to what constitutes a highly compensated worker. Further note that equity or in-kind benefits cannot be used to satisfy the above compensation threshold requirements.
Even if a person earns more than the above limits, new changes to Colorado law only allow non-compete and non-solicitation agreements to protect trade secrets, and to be no broader than is reasonably necessary to protect the employer’s legitimate interests in protecting their trade secrets. In this regard, restrictions are expected to continue to be applied by Colorado Courts requiring that such non-compete and non-solicitation agreements be reasonable in geographic reach, duration, and scope. For agreements entered into after August 9, 2022, companies will no longer be allowed to justify the enforcement of a non-compete or non-solicitation agreement based solely on the fact that an employee may be an executive or in management or professional staff thereto.
If retained by you, Hansen Law Firm can help you to understand how Colorado courts are likely to determine whether you have had access to trade secrets and whether the Colorado non-compete and/or non-solicitation agreement in question is likely to be considered broader than reasonably necessary to protect the employer’s legitimate interests in protecting their trade secrets.
Strict Notice Requirements Now Apply in Colorado
Under Colorado contract law, strict notice requirements apply to non-compete and non-solicitation agreements entered into after August 9, 2022. Simply handing the non-compete or non-solicitation agreement to the employee or prospective employee is not enough. A separate written document providing certain particularized notice as to what the worker or prospective worker is being asked to sign must be provided and signed by the employee or prospective employee. If the strict notice requirements are not followed, non-compete and non-solicitation agreements entered into after August 9, 2022 are void under Colorado non compete law. As for current workers, such workers must be given at least 14 days advance written notice of: (a) the request by the employer to sign a non-compete or non-solicitation agreement; and/or (b) the provision by the employer of additional consideration or any other change in employment conditions that provides consideration for the non-compete or non-solicitation agreement. As for prospective workers, gone are the days of an employer hiring a worker and then springing a Colorado non-compete agreement on the worker right after they have moved their life around to take the job. Prospective workers must be provided with the proposed non-compete or non-solicitation agreement, and the required related notice, before the worker accepts the offer of employment.
If you are provided a written notice and a proposed non-compete agreement and/or non-solicitation agreement to review, if retained by you, the Colorado contract lawyer at Hansen Law Firm can help you evaluate, understand, and potentially negotiate the proposed non-compete agreement and/or non-solicitation agreement before you sign it. If you are not provided the required written notice, if retained by you, Hansen Law Firm can help you to navigate how to address the situation and the best legal strategy for you with our contract law services in Colorado.
Confidentiality Agreements, Nondisclosure Agreements and Non-Solicitation of Employee Provisions Are Still Allowed in Colorado
When reviewing any agreement with your employer or prospective employer, keep in mind that, even under the new Colorado law, companies are still allowed to enforce a reasonable confidentiality and/or nondisclosure provision relevant to the employer’s business as long as the provision does not: (a) prohibit disclosure of information that arises from the worker’s general training, knowledge, skill, or experience, whether gained on the job or otherwise; (b) information that is readily ascertainable to the public; or (c) information that the worker otherwise has the right to disclose as legally protected conduct. You should also keep in mind that Colorado continues to put no limitations on the ability of an employer to prohibit you from soliciting its employees.
Physicians are Still Treated Differently than All Other Workers in Colorado
Colorado has long treated physicians differently than every other worker in the state when it comes to the enforcement of non-compete and non-solicitation agreements. Presumably based on the notion that a physician has spent too much time and money to obtain their medical license to restrict where they practice, to protect patient choice, and/or to protect the ability of physicians to stay in Colorado to service its population, non-compete and non-solicitation agreements are not allowed to be used to restrict a physician from competing for and/or soliciting patients. Under the new Colorado law, it remains the case that the only remedy available with respect to a physician who violates a non-compete or a non-solicitation agreement is the award to damages against the physician for breaching the agreement, with certain exceptions for the treatment of patients with rare disorders.
Employers May No Longer Require Another State’s Law to Apply or Force You to Defend Yourself in Another State
Under the new Colorado law, if you are employed or work primarily in Colorado at the time of your termination of employment, an employer may no longer, with regard to Colorado non-compete and non-solicitation agreements entered into after August 9, 2022, require you to litigate the enforceability of a non-compete or non-solicitation agreement outside of Colorado or require that some other state’s law be applied to determine the enforceability of the non-compete or non-solicitation agreement. Colorado law provides that notwithstanding any contractual provision to the contrary, Colorado law shall be applied by a Colorado court to rule on any such questions regarding non-compete and non-solicitation agreements entered into after August 9, 2022. Importantly, other state courts may not respect Colorado law in such regard and may still attempt to adjudicate the dispute and apply their own law. To try to prevent such an outcome, a worker who is a party to a non-compete or non-solicitation agreement, may seek a declaratory judgment from a Colorado court of competent jurisdiction, or an arbitrator if an arbitration clause applies, to ask that it be declared that the non-compete or non-solicitation agreement is unenforceable under Colorado law. A Colorado worker or resident at the time of termination of employment, who is subject to a non-compete or non-solicitation agreement entered into on or after August 9, 2022, which agreement picks another state’s law to apply and/or another state’s court to resolve any dispute involving the agreement, may wish to retain Hansen Law Firm, to attempt to win the race to the courthouse by filing a declaratory judgment action in Colorado before the employer runs to the courthouse of their selected state to enforce the agreement against you.
Potential Monetary Penalties and the Award of Attorneys’ Fees May be Available to You Against Your Employer or Potential Employer in Colorado
The new Colorado law provides for the first time for potential monetary penalties and attorneys’ fees to be awarded if an employer, after August 9, 2022, enters into, presents to a worker or prospective worker, or attempts to enforce, any Colorado non-compete agreement and/or non-solicitation agreement that is void under Colorado law. For each unenforceable agreement, the employer may be held liable for actual damages, plus a $5,000 penalty per worker or prospective worker “harmed by the conduct.” If retained by you, Hansen Law Firm can help you evaluate whether you may be entitled to the award of damages, penalties, an injunction to prohibit the behavior, and attorneys’ fees related to an employer’s or prospective employer’s actions in such regard.
What if my Colorado Non-Compete was entered into before August 9, 2022?
For Colorado non-compete and non-solicitation agreements entered into before August 9, 2022, the new Colorado law will not apply. Instead, you will need to rely on the terms of Colorado Revised Statute Section 8-2-113 as it existed before the change in the law became effective. To better understand the ins and outs of C.R.S. § 8-2-113 before it was amended, please refer to my prior blog entry which can be found at the following link:
Did not the Federal Government, thru the Federal Trade Commission (FTC), outlaw all non-competes in the US?
The Federal Government thru the Federal Trade Commission (“FTC”) has circulated a proposal to require employers on a nationwide basis to withdraw existing non-compete agreements and inform workers that they no longer apply. The proposal would also make it illegal for an employer on a nationwide basis to enter into a non-compete with a worker or to try to do so, or to suggest that a worker is bound by a non-compete when he or she is not. However, the proposal at this point is only a proposal and has not yet, as of the date of this blog, been made a rule. Moreover, even if the proposal is made into a rule, its legality is likely to be tested in Court. The FTC will likely face legal challenges, including, but not limited to, from the United States Chamber of Commerce, that a nationwide ban on non-competes is outside the rulemaking authority which Congress granted to the FTC. Given the nation’s conservative leaning Supreme Court, it is not at all clear that any such nationwide proposal by the FTC, even if it becomes a rule, will be determined to be enforceable.
Call Hansen Law Firm for More Information About Colorado Non Compete Law
If you have been asked to sign a Colorado non-compete agreement or non-solicitation agreement, Hansen Law Firm can help you to understand whether you may rightfully be subject to such an agreement and, if so, potentially negotiate an agreement that better protects you and your long-term interests. If you have already signed a Colorado non-compete agreement or non-solicitation agreement, Hansen Law Firm can help you to better understand your rights and responsibilities under the agreement. Our Denver business lawyers serving Colorado are knowledgeable on all things related to non-compete agreements and their legality and enforceability within the State of Colorado. To schedule a free consultation, please call 303-785-7777.