Are Non-Compete Agreements Enforceable In Colorado?
We are regularly asked by businesses and individuals: Are Non-Compete Agreements enforceable in Colorado. The answer is not so simple. Many employees believe, erroneously, that Colorado Non-Competes are not enforceable. In fact, Non-Competes in Colorado are enforceable in certain situations.
In Colorado Non-Compete Agreements are presumptively void and are valid only if the non-compete agreement falls within one of the statutory exceptions above, and the restrictions on competition are reasonable under the circumstances, should the Non-Compete be enforceable.
The party seeking to enforce the Non-Compete bears the burden of establishing that:
- The Non-Compete Agreement is/was supported by consideration.
- One of the narrow statutory exceptions applies;
- The scope of the Non-Compete is reasonable;
1. The Non-Compete Agreement is/was Supported by Consideration.
Non-Compete Agreements are contracts, and contract formation principles apply. Colorado courts have found the following to be sufficient consideration to support a Non-Compete Agreement:
- An offer of employment;
- Receipt of employment to which an employee was not previously entitled;
- Continued employment.
The Colorado Supreme Court has held that continued at-will employment is sufficient consideration for a non-compete agreement entered into after hire. This may not be the case in other states however. If you are a contract employee however, such an agreement, without consideration, would most likely not be enforceable.
2. One of the Narrow Statutory Exceptions Applies;
Generally, Colorado law prohibits Non-Compete agreements that restrict a person’s right to receive compensation for performance of skilled or unskilled labor receive compensation for performance of skilled or unskilled labor for any employer, but that prohibition does not apply to Non-Compete Agreements made:
- In connection with the sale of a business;
- For the protection of trade secrets;
- For the recovery of an employee’s training or education costs; or,
- For “executive and management personnel” or “officers and employees who constitute professional staff to executive and management personnel.”
C.R.S. § 8-2-113(2). These exceptions must be narrowly construed.
Colorado extends the “executive and management personnel” category to include even mid-level supervisors who lack key decision-making authority. Generally, so long as the employee is at the top level of compensation and at least at the start of the decision-making level, with some amount of autonomy, then that employee will fall within the statutory exception for management and executive personnel. Further, Colorado courts have expanded the exception to also include officers and employees who constitute “professional staff” to management and executive personnel. The exception applies to individuals who qualify as “professionals” serving as key members of the manager’s executive staff and are involved in the implementation of management or executive decisions.
3. The Scope of the Non-Compete Agreement is Reasonable;
An enforceable Non-Compete Agreement in Colorado must be reasonable in its geographic and duration limitations. Non-Compete Agreements without limits are unenforceable.
The court must examine the terms and circumstances of each case to determine what is reasonable.
The geographic and duration restrictions must:
- Be reasonable.
- Not impose undue hardship on a party.
- Be no greater than necessary to afford the required protection.
There is no particular time period that has been established as a reasonable duration for Non-Competition provisions, however we often see two (2) years as “reasonable” and even covenant periods of up to five (5) years have been enforced in Colorado. Non-Compete Agreements without geographic limits are unenforceable in Colorado.
What Happens if You Breach an Non-Compete Agreement?
As Non-Compete Agreements are contracts, contract damages may be awarded. However, such damages are speculative and likely hard to prove. The most common remedy for enforcing non-compete covenants in Colorado is injunctive relief, i.e., the court will order a party to stop doing something. In this case, competing.
Other Considerations To Keep In Mind:
- Lawsuits arising from breach of Non-Compete Agreements generally involve much more than just going to work for a competitor. In our experience, the issue is usually that the former employee has taken confidential information and/or trade secrets from the former employer and has given that information to the new employer. The question then becomes whether the former employees information is protectable, and whether the new employer is using that information. These lawsuits are fact intensive and costly. In the end, an employee and new employer could face massive and debilitating damages. It is critical for employers to ensure new hires do not bring with them any protected information.
Contact our Colorado civil litigation attorneys today. LaszloLaw is a Colorado law firm that provides counsel on a wide range of legal needs including litigation. Contact our Boulder lawyers online or at 303-926-0410 to discuss your needs.