Does a Non-compete Agreement Really Mean I Can’t Work in Colorado?
Employees are often required to sign an overwhelming amount of paperwork when they start working for a new company. Even employees who have been with the same employer a long time are sometimes required to sign agreements, such as arbitration agreements, confidentiality agreements, or noncompete agreements. But what is a noncompete, and what does it mean for a Colorado employee who has entered into one, or being asked to sign one?
What is a Non-compete Agreement?
A noncompete agreement, also known as a noncompetition agreement, restrictive covenant, or covenant not to compete, is a legal contract between an employer and an employee that restricts the employee’s ability to compete with the employer’s business during and sometimes after their employment relationship. The main purpose of a noncompete agreement is to prevent employees from using the knowledge, skills, and confidential information gained during their employment to directly compete with their former employer. Key points of a noncompete agreement often include:
- Scope of Restrictions: This defines the specific activities or industries that the employee is prohibited from engaging in while they are employed and possibly for a certain period after their employment ends.
- Geographical Limitations: Noncompete agreements often specify a geographic area where the restrictions apply, which could be a specific city, state, or region.
- Duration: The agreement states the length of time during which the employee is bound by the restrictions. This can vary but is typically limited to a certain number of years.
- Consideration: In most jurisdictions, noncompete agreements require some form of consideration, usually in the form of compensation or benefits, in exchange for the employee agreeing to the restrictions.
- Protection of Trade Secrets: Noncompete agreements are often used to protect an employer’s trade secrets, proprietary information, customer relationships, and business strategies.
- Enforceability: The enforceability of noncompete agreements varies widely depending on the jurisdiction and local laws. Some jurisdictions may uphold them if they are deemed reasonable in scope, duration, and geographic reach, while others may consider them overly restrictive and unenforceable.
Colorado Noncompete Law
Colorado has a long had a strong public policy against covenants not to compete. On August 10, 2022, the law with respect to restrictive covenants changed significantly in Colorado, and became even more hostile to the enforcement of such agreements. Colorado law makes it unlawful “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.” Only covenants that fit under one of the limited exceptions to the complete prohibition on restrictive covenants in C.R.S. § 8-2-113 may be enforced, and all others are void. Some of the other important aspects of Colorado noncompete law include the following:
- Only for “highly compensated” employees
Noncompetes may only be enforced against a Colorado employee if an employee is “highly compensated.” What makes an employee highly compensated is determined by the Colorado Department of Labor, and the amount increases with inflation annually. Generally, noncompetes may only be lawfully entered into with employees whose salary exceeds $112,500 adjusted for inflation.
- Notice is required
An employer seeking to restrict a Colorado employee through a covenant not to compete must also now provide the employee with notice that complies with the statute. Specifically, the notice must be in a separate document and in clear and conspicuous language (1) reference the restrictive covenant agreement by name, (2) state the that the agreement contains a restrictive covenant, (3) identify where in the agreement the restriction is located, and (4) contain a copy of the agreement. The notice must also be signed by the employee. This notice and the terms of the agreement must also be provided to a current employee at least two weeks before the earlier of the effective date of the restrictive covenant or the effective date of the consideration.
- Choice of Law
The Colorado noncompete statute applies to any noncompete entered into with any employee who, at the time of the termination of his or her employment, resides or works primarily in Colorado. Therefore, an employer may not circumvent the Colorado noncompete statute by attempting to incorporate the law of another state with laws more favorable to employers with respect to restrictive covenants.
- Criminal and Civil Penalties
Importantly, Colorado law now makes it unlawful not only to enter into a noncompete that does not comply with the statute, but even to present such an agreement to an employee or prospective employee. An employer who violates the statute can be required to pay damages, attorney fees, costs, and a civil penalty of $5,000.00 per employee or prospective employee harmed.
Seek Qualified Counsel
It’s important to note that the enforceability of noncompete agreements can be a complex legal issue, and the consequences can be huge for both employees and employers. If you’re presented with a noncompete agreement or have questions about one, it’s advisable to consult with a legal professional who is knowledgeable about Colorado employment law to enable you to determine your rights and obligations. Contact The Bourassa Law Group today to get the expert advice you need to understand your specific situation.
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