An Overview: Non-Compete Agreement Law Change Mar 14, 2022
Non-competition agreements, or “non-competes”, are used by employers to prevent key employees who may have acquired knowledge of confidential or sensitive business information during their employment from leaving the company to set up a similar business or go to work for the competition, and ultimately, a non-competition agreement is worth very little if it’s not enforceable.
Colorado Revised Statue §8-2-113 makes it “unlawful to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit.” Under the statute, non-competes are unenforceable unless they fall under one of the following exceptions:
- Contracts for the purchase and sale of a business or the assets of a business;
- Contracts for the protection of trade secrets;
- Contracts for the recovery of training expenses for employees who have worked for their employer for less than two years; and
- Contracts with executive and management personnel and officers, or the personnel or staff of executives and management personnel.
As of March 1, 2022, changes are coming to this Colorado law that employers need to be aware of when drafting and enforcing employee agreements. Employers who attempt to wrongfully enforce a non-compete will be subject to greater punishments than before.
Senate Bill 21-271 was approved on July 6, 2021 and went into effect on March 1, 2022. The Bill addresses C.R.S. § 8-2-113 by recognizing a violation of the statute as a class 2 misdemeanor. Prior to this Bill, violation of C.R.S. § 8-2-113 simply rendered violating non-competes as unenforceable. Now, punishments for such violation can include fines of $750 and jail time for up to 120 days, or both. While the violation guidance is currently limited as to enforcement and exceptions, the Bill makes all violations of the statute a class 2 misdemeanor by adding “a person who violates this section commits a class 2 misdemeanor.”
Amongst the uncertainties surrounding this law, it is unclear who will prosecute an employer for violating this statute. Regardless, employers who take strong positions regarding their former employees working for competitors may subject themselves to criminal liability if they do not qualify for one of the listed statutory exceptions.
We will be closely monitoring how Colorado enforces this new law. In the meantime, employers should be mindful of these changes when entering into employment agreements with their employees. The Bill is also an opportunity for employers to take a cautionary approach by revisiting any standard employee agreements they have to ensure the agreements are not in violation of C.R.S. § 8-2-113. Otherwise, if employers do have non-competes in their employee agreements, they should proactively identify the specific exception their non-compete falls into of the four listed in the statute.
MLMW is a business, real estate, finance, and litigation law firm. Craig T. Watrous is a Colorado business attorney with MLMW based in Denver, Colorado. Craig regularly represents corporations. Craig can be reached at cwatrous@mlmw-law.com .