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.
This post, originally published in 2018, has been updated to reflect recent changes in Colorado law.
In Colorado Non-Compete Agreements are presumptively void and are valid only if the non-compete agreement falls within one of the statutory exceptions, and the restrictions on competition are reasonable under the circumstances.
With limited exceptions, non-compete and non-solicitation agreements are void under Colorado law unless:
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:
- For the protection of trade secrets;
- In connection with the sale of a business;
- For the recovery of an employee’s training or education costs.
C.R.S. § 8-2-113(2). These exceptions must be narrowly construed.
As of August 10, 2022: The prohibition does not apply to “highly compensated workers” 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.”
The keys here are: (1) “highly compensated worker” ($112,500 in 2023), AND (2) “to protect … trade secrets.”
While Colorado courts consider non-solicitation agreements as non-competition agreements, the statute makes a distinction in the enforceability thereof, and states that a worker must make at least 60 percent of the “highly compensated worker” salary threshold ($67,500 in 2023) to be bound by a valid nonsolicitation of customers provision (i.e., one that is for the protection of trade secrets).
Again, the critical takeaway is that regardless of all other exceptions, the non-compete and/or non-solicitation agreement must be for the protection of trade secrets. Thus, an employer will need to establish that it has trade secrets, that those trade secrets are protectible, and that the non-compete and/or non-solicitation agreements are tailored to protect them. Quite simply, these are not “check the box” hurdles.
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.