Ask Reggi Your Question Now
Reggi is the free generative AI assistance for regulatory compliance
Can I require employees to sign non-compete agreements in Colorado? What are the requirements?
Non-compete agreements are allowed in Colorado, but there are specific requirements that must be met for them to be enforceable.
Requirements for Non-Compete Agreements in Colorado
- Legislative Intent: The general assembly intends to preserve existing state and federal case law in effect before August 10, 2022, that defines what counts as a covenant not to compete that is prohibited by this section and specifies the extent to which a covenant not to compete for the protection of trade secrets must be tailored in scope in order to be enforceable under this section.
- Prohibition: It is unlawful to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place the person sees fit. A person who violates this subsection (1.5) commits a class 2 misdemeanor.
- Void Agreements: Any covenant not to compete that restricts the right of any person to receive compensation for performance of labor for any employer is void, except for certain exceptions.
- Exceptions: The following covenants are not prohibited by subsection (2) of this section:
- A provision providing for an employer’s recovery of the expense of educating and training a worker where the training is distinct from normal, on-the-job training, the employer’s recovery is limited to the reasonable costs of the training and decreases over the course of the two years subsequent to the training proportionately based on the number of months that have passed since the completion of the training, and the employer recovering for the costs of the training would not violate the “Fair Labor Standards Act of 1938”, 29 U.S.C. sec. 201 et seq., or article 4 of this title 8.
- A reasonable confidentiality provision relevant to the employer’s business that does 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 a worker otherwise has a right to disclose as legally protected conduct.
- A covenant for the purchase and sale of a business or the assets of a business.
- A provision requiring the repayment of a scholarship provided to an individual working in an apprenticeship if the individual fails to comply with the conditions of the scholarship agreement.
- Notice: Any covenant not to compete that is otherwise permissible under subsection (2) or (3) of this section is void unless notice of the covenant not to compete and the terms of the covenant not to compete are provided to a prospective worker before the worker accepts the employer’s offer of employment or 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 or conditions of employment that provides consideration for the covenant.
- Worker’s Compensation: A covenant not to compete governing a person who, at the time the covenant not to compete is entered into and at the time it is enforced, earns an amount of annualized cash compensation equivalent to or greater than the threshold amount for highly compensated workers, if the covenant not to compete is for the protection of trade secrets and is no broader than is reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.
- Solicitation of Customers: A covenant not to solicit customers governing a person who, at the time the covenant is entered into and at the time it is enforced, earns an amount of annualized cash compensation equivalent to or greater than sixty percent of the threshold amount for highly compensated workers if the nonsolicitation covenant is no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.
- Physicians: Any covenant not to compete provision of an employment, partnership, or corporate agreement between physicians that restricts the right of a physician to practice medicine, as defined in section 12-240-107, upon termination of the agreement, is void; except that all other provisions of the agreement enforceable at law, including provisions that require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the agreement, are enforceable.
- Governing Law: A covenant not to compete that applies to a worker who, at the time of termination of employment, primarily resided or worked in Colorado may not require the worker to adjudicate the enforceability of the covenant outside of Colorado. Notwithstanding any contractual provision to the contrary, Colorado law governs the enforceability of a covenant not to compete for a worker who, at the time of termination of employment, primarily resided and worked in Colorado.
- Declaratory Judgment: A worker who is a party to a covenant not to compete, or a subsequent employer that has hired or is considering hiring the worker, may seek a declaratory judgment from a court of competent jurisdiction or an arbitrator that the covenant not to compete is unenforceable.
- Penalties: An employer shall not enter into, present to a worker or prospective worker as a term of employment, or attempt to enforce any covenant not to compete that is void under this section. An employer that violates this provision is liable for actual damages and a penalty of five thousand dollars per worker or prospective worker harmed by the conduct. The attorney general and any worker or prospective worker harmed by an employer’s conduct may bring an action for injunctive relief and to recover penalties. In addition to injunctive relief and the penalty allowed in this provision, a worker or prospective worker may recover actual damages, reasonable costs, and attorney fees in any private action brought under this section.
Conclusion
In Colorado, non-compete agreements are allowed, but they must meet specific requirements to be enforceable. Any covenant not to compete that restricts the right of any person to receive compensation for performance of labor for any employer is void, except for certain exceptions. Employers must provide notice of the covenant not to compete and the terms of the covenant not to compete to workers. Employers that violate the requirements for non-compete agreements are liable for penalties and damages.
Jurisdiction
Colorado