Every Colorado business dreads the thought of losing a trusted, management or executive level employee to a competitor or to start their own competing business. Having a well-drafted and enforceable non-compete agreement is an important method to limit the damage to your business from the loss of a key employee to a competing business.
The former employee or his new employer will likely challenge the enforceability of the non-compete agreement. Historically such agreements were viewed as unlawful restraints on trade. Today, such agreements can be enforceable, but this will depend on how the non-compete is drafted, especially regarding the former employee’s duties and responsibilities and how the non-compete is designed to protect the company’s specific business interests. Careful consideration of several factors is important to make the agreement more likely to hold up in court.
Whether the non-compete is enforceable in Colorado will, in the first instance, depend on whether it falls within categories permitted under the Colorado statute, namely:
- Restrictions contained in the sale of a business;
- Protection of trade secrets;
- Recovery of employee training or educational expenses; and,
- Restrictions limited to “executive” and “management” personnel and their professional staff.
The non-compete restrictions must also be reasonable in their: 1) duration, and 2) geographic scope. Determining the reasonableness of these two provisions depends on your business and industry, and it is often determined on a case-by-case basis. If a court determines that the restrictions are overreaching or unreasonable, the court may deny enforcement of a specific provision or the entire agreement.
Taking preventative measures to protect your company can reduce the risks of an ex-employee or a competitor unfairly using your sensitive business information, trade secrets, customer information and business plans in competition with your business. In follow-up posts, we will discuss enforcement of non-compete agreements as well as the very important use of confidentiality/non-disclosure and non-solicitation clauses in conjunction with a non-compete. Not only can the competition from a former employee seriously hurt your business, but the litigation expenses of trying to enforce a poorly drafted non-compete can be costly and time consuming, and might not be successful. Having a well-drafted and enforceable non-competition agreement can help prevent these types of business disputes or quickly bring them to a conclusion.
The attorneys at Mallon Lonnquist Morris & Watrous are experienced in drafting and enforcing non-competition, non-solicitation and non-disclosure agreements on behalf of Colorado employers. Please contact us if you would like to speak with us about drafting or enforcing non-competes.
Craig Watrous is a Colorado business and real estate litigation attorney with Mallon Lonnquist Morris & Watrous, based in Denver, Colorado. Craig regularly represents businesses and individuals in business transactions and disputes, from pre-filing through trial, and can be reached at email@example.com.