Colorado’s newest non-compete legislation went into effect on August 10, 2022. The law significantly restricted how employers and small businesses can protect themselves, while significantly expanding an employee or independent contractor’s ability to compete. The new law creates a host of compliance issues for employers, many of which are detailed in this post. To ensure your business is compliant and using enforceable non-compete agreements, contact the attorneys at Sullenberger Roskamp PLLC.
Who can be bound by a non-compete agreement?
Prior to the recent amendment, the law generally voiding non-compete and non-solicitation agreements did not apply to executives, management personnel, officers, and professional staff to executives and management personnel. The new amendment does away with these vague classifications, instead opting for a financial threshold.
The new law permits employers to bind workers to non-compete agreements when the employee “earns an amount of annualized cash compensation equivalent to or greater than the threshold amount for highly compensated workers.” C.R.S. § 8-2-113(2)(b). The statute defines the threshold amount as the Department of Labor and Employment’s threshold as of August 10, 2022 ($101,250) or at the time the agreement is executed by the parties, whichever is greater. C.R.S. § 8-2-113(2)(c)(B)(II). However, even for workers in that class, non-compete agreements must be tailored in scope.
Who can be bound by a non-solicitation agreement?
The new law also permits non-solicitation agreements where the worker earns 60%+ of the threshold amount for highly compensated workers. C.R.S. § 8-2-113(2)(d). Again, even in this class, the agreement must still be “no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.” Id.
Other exceptions to the new law
The new law expressly allows employers to enforce several types of agreements, including
(1) an agreement for the employer to recover the reasonable costs and expenses of “educating and training a worker where the training is distinct from normal, on-the-job training (with additional caveats);
(2) a “reasonable confidentiality agreement relevant to the employer’s business that does not prohibit disclosure of information that arises from” a worker’s general experience and knowledge;
(3) agreements for the purchase and sale of a business or its assets; and
(4) an agreement for the employer to recover “repayment of a scholarship provided to an individual working in an apprenticeship” if conditions of the scholarship agreement are not met. C.R.S. § 8-2-113(3).
Notice Requirements
Even if an employer is legally able to bind a worker to a noncompete for any of the foregoing reasons, the employer still has an additional hoop to ensure the agreement is enforceable – notice. The new law will void an otherwise enforceable non-compete agreement if the employer fails to comply with fairly strict notice procedures. C.R.S. § 8-2-113(4)(a).
The employer must provide notice of the existence of the non-compete provision, as well as its terms, to prospective workers before the worker accepts a job offer. C.R.S. § 8-2-113(4)(a)(I).For current workers, employers must provide the same notice at least 14 days before the effective date of the non-compete or the effective date of any altered pay or terms and conditions of employment offered in consideration for the non-compete, whichever is earlier. C.R.S. § 8-2-113(4)(a)(II). Employers are now obligated to obtain the worker’s signature on the notice to comply, which must be in a document separate and apart from the agreement itself. C.R.S. § 8-2-113(4)(b).
The statute provides the employer with a safe harbor of sorts as it relates to the notice requirements. An employer complies with its notice obligations when it
(1) provides the notice with a copy of the non-compete agreement;
(2) the notice identifies the agreement containing the non-compete by name;
(3) the notice informs the worker that the agreement contains a non-compete which could restrict options for employment after they leave the employer; and
(4) the notice directs the worker to the specific paragraphs of the agreement that contain the non-compete language. C.R.S. § 8-2-113(4)(d).
The language of the new law can be immensely confusing, and the consequences for noncompliance can be severe. For small business owners facing issues with non-compete or non-solicitation violations, or those looking to ensure they are compliant moving forward, Sullenberger Roskamp PLLC is here to help.