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Enforcement of Colorado Non-Compete Agreements against Executive and Management Personnel

Dec 05, 2016

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By Reed F. Morris:

Colo. Rev. Stat. Section 8-2-113(2)(d) provides the exception to the general rule voiding non-competes in Colorado allowing for their enforceability against a company’s management-level employees. A Colorado non-compete agreement is enforceable when applied to: 

[e]xecutive and management personnel and officers and employees who constitute professional staff to executive and management personnel.

Two Colorado Court of Appeals decisions guide the analysis of this exception from definitional standpoint as to what falls under the categories of:

a)    “executive and management personal” or

b)    those who are their “professional staff”

What falls each of these categories is complicated. Dozens of cases have looked at this issue in Colorado at the trial court and appellate levels. While analysis of this exception will continue to be fact sensitive and performed on a case-by-case basis, the underpinnings of any court’s analysis will be grounded on the statute’s purpose: protection of employers from the disruption from loss of a key executive and being subject to disclosure of higher-level business information to a competitor.

As to how the management and executive exception is defined in law is outlined in the following two decisions of the Colorado Court of Appeals. 

Executive and Management Personnel:

In DISH Network Corp. v. Altomari, 224 P.3d 362, 368 (Colo. App. 2009), the Court of Appeals recognized that General Assembly did not define “management personnel,” in the statute and held that “the plain meaning of the term applies.” Applying the “plain meeting,” the Colorado Court of Appeals found that the executive and management personnel exception allowed for the enforcement of a non-compete agreement against, “a mid-level manager who supervised fifty employees, was otherwise at the top of the compensation scheme, was employed in a decision-making capacity, and had a certain level of autonomy.” Id.  The DISH Network case expressly overturned the trial court that incorrectly applied a standard asking whether the employee was a “key personnel at the heart of a business” in order for the excpetion to apply. Id. at 366.

Professional Staff to Executive and Management Personnel:

In Phoenix Capital, Inc. v. Dowell, 176 P.3d 835, 842 (Colo. App. 2007), the Colorado Court of Appeals held “that the phrase ‘professional staff to executive and management personnel’ is limited to those persons who, while qualifying as “professionals” and reporting to managers or executives, primarily serve as key members of the manager's or executive's staff in the implementation of management or executive functions. The Phoenix Capital case found that a key issue was whether the employee in question “primarily served as a key member of their staff in the implementation of management or executive functions” and upheld the trial court’s determination that the non-compete was unlikely enforceable against and employee that performed 80-90% of their duties “in a sales (rather than a management) support role.” Id. at 843.

Note: this is not an exhaustive treatment of the case law in Colorado on this topic, which may not be up to date by the time you are reading this. New decisions are issued regularly, particularly in areas of heightened litigation.   mlmw_mark_SM.jpg

 

Mallon & Lonnquist, LLC, is a business and real estate law firm. Reed F. Morris is a Colorado business and real estate litigation attorney with Mallon & Lonnquist, based in Denver, Colorado. Reed regularly represents businesses and individuals in business transactions and disputes, from pre-filing through trial, and can be reached at rmorris@mallon-lonnquist.com.   



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