Colorado’s New Non-Compete Law

 Valid In 2022, the Colorado State Legislature passed HB22-1317 titled Restrictive Employment Agreements Covenants on Non-Competes. This law now places a greater burden on employers in regards to non-compete agreements with employees and helps define when non-competes are valid.

Old Colorado Non-Compete Law

Non-compete covenants have generally been used by employers to restrict the ability of employees to compete with the employing company both during and after employment. Some estimates state that up to 18% of employees are currently bound by a non-compete agreement with over 38% agreeing to one at some point in their previous employment history. In Colorado, prior to the passage of HB 22-1317, covenants not to compete were typically void except in some cases. HB 22-1317 has made covenants not to compete less enforceable than they previously were and now codifies non-compete covenant law into statute.

When are Non-Competes Valid Now?

Previously, non-competes were generally void except to protect trade secrets, in the case of selling a company, and other narrowly tailored circumstances. Under the new non-compete statute, the law now says non-competes are void except:

1. If the covenant not to compete with the company’s business is made with highly compensated individual (equal or greater to average compensation for the role), is for the protection of a trade secret, and is not overly broad.

2. If the covenant not to compete involves the solicitation of the company’s customers, and not a general non-compete with the company, the covenant has to be made with someone that earns 60% or more the average compensation for the role, is to protect trade secrets, and no broader than necessary.

What about Training?

In the case where an employer pays for an employee’s training as part of employment and the employer requires repayment upon termination, the employee can only be required to pay back training if it isn’t specific for the job and the repayment occurs within two years of the training. Further, the repayment must be prorated based on the two years so if someone quits one year after the training, they would be required only to repay up to fifty percent of the cost of the training. Lastly, there are separate rules if the cost is deemed to be part of a scholarships for an apprentice.

Other Non-Compete Issues

As allowed prior to HB 22-1317, confidentiality requirements are still allowed if they are for information that is not generally known. However, if the disclosure is allowed by law (for example under whistle-blower protections), then the confidentiality requirement may be void. Non-competes involving an owner who is selling their business to another party are generally still valid.

Employees can request a copy of any non-compete or non-solicit that they have with the company at least once per year. The company will be required to give the employee a copy of the document upon request.

New Liability for Employers

The biggest change in the non-compete realm deals with penalties for non-competes that are not enforceable. The new statute has language that if a non-compete violates any of the above, the employee can receive damages of $5,000.00 under the statute in addition to injective relief and any actual damages. The employee can also receive attorney fees and costs as well.

As the new rules apply to any employee who is based in Colorado at time of termination, it is important that all Colorado-based companies and those companies that have employees in Colorado make sure they are complying with the new regulations. If there are any questions what your company needs to do, please contact me, your Denver small business attorney, Elizabeth Lewis at 720-258-6647 or schedule online today!

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