The long and the short of Colorado’s new prohibition on non-compete agreements
These new rules impose strong penalties on employers who violate the statute — including fines of up to $5,000 for attempting to enforce or even present to an employee a non-compete that is later deemed “void.”
The Short of it
Colorado’s new non-compete statute presents some difficult compliance challenges for employers. To best ensure that you are complying with these changes, please contact Sara Sharp at sharp@skandslegal.com.
The Long of it
Colorado Governor Jared Polis signed HB 22-1317 into law on June 8, 2022. The new law significantly limits the enforceability of non-compete agreements that are signed after August 10, 2022 for Companies with employees working or living in Colorado.
The new non-compete law is not retroactive, i.e., the enforceability of any existing non-compete agreements, or non-compete agreements that are executed prior to August 10, will be assessed by the current, more relaxed standard. Some employers may decide to avail themselves of current law and expedite the non-compete execution process with employees not currently subject to such restrictions. Employers should take care to review their agreements to ensure that the restrictions are enforceable under current Colorado law.
Non-compete agreements that were signed before August 10 of 2022 are not affected by the new rules. Companies should review the language of existing non-compete agreements to ensure that they do not require changing before using them again after August 10.
It’s also important to take a critical look at whether an agreement which is not obviously a non-compete may functionally be a non-compete and therefore subject to these new rules. This type of language can be hidden in anything from an NDA to an invention assignment.
These new rules impose strong penalties on employers who violate the statute — including fines of up to $5,000 for attempting to enforce or even present to an employee a non-compete that is later deemed “void.”
To qualify for certain statutory exceptions, the new law requires that employees meet compensation thresholds at the time of signing as well as at the time of enforcement. Where the non-compete agreement is designed to protect trade secrets, to qualify for the “highly compensated employee” exception, an employee must earn annual compensation of at least $101,250. For provisions dealing with non-solicitation of customers, the minimum annual compensation threshold is $60,750. Failure to meet these annual compensation thresholds will render the agreements void which could result in the punitive fines referenced above.
Compensation for commissioned individuals or partners may be less clear. In consideration of the substantial statutory penalties for executing a void non-compete agreement, employers should assess compensation levels carefully.
