Colorado’s non-competition statute, C.R.S. 8-2-113, has long created confusion due to its seemingly simple but hotly contested exceptions to the state’s general prohibition on non-competition agreements. HB 22-1317, which was signed into law today, significantly changes Colorado’s non-competition law by eliminating or restricting two of the most-used non-compete exceptions, adding notice requirements, and additional penalties for enforcement of a void agreement.
Removal of Exceptions
The managerial and professional staff exemption will be removed and replaced with an exception for the protection of trade secrets for highly compensated employees (HCE) as defined by the CDLE. HCEs are current employees who earn a little more than $100,000 per year, and the new statute requires that the employee earn at this threshold both at the time the non-compete was signed and at the time the non-compete is enforced. The previous exception for trade secrets will now only apply if the HCE thresholds are met, and must also be no broader than reasonably necessary to protect those trade secrets.
The non-competition statute will also permit an exception allowing a prohibition on the solicitation of customers by former employees who earn at least 60% of the HCE salary threshold if the non-compete is narrowly tailored to protect trade secrets.
The law’s current requirement that restrictions be reasonable in time and geographic distance area remain, as do exceptions for recovering training costs or non-competition agreements signed upon the purchase or sale of a business.
New Procedural and Notice Requirements
The revised non-competition statute also adds a new notice requirement for employers in the form of a separate notice to employees that the employee is under a non-competition agreement and the terms of the non-compete. The employer must obtain the employee’s signature on the notice as well. Failure to provide notice will lead to the non-compete being found void.
Penalties
HB 1317 imposes potential liability against employers who attempt to enforce void non-compete agreements. The law provides for actual damages, reasonable costs, attorney’s fees, and statutory penalties of up to $5,000 per worker harmed. Given that non-compete litigation is often complex, fact-specific, and highly contentious, the addition of attorney’s fees and costs is likely to multiply the potential liability in non-compete cases by many times the actual damages at issue.
Forum Selection and Choice of Law
Finally, HB 1317 requires that non-compete agreements apply Colorado law and select Colorado as the forum state in order to be enforceable against any employee who either worked or resided in Colorado at the time of termination. This requirement addresses the common situation where a multi-state employer designates one favorable forum and choice of law for all employees.
Takeaways from the changes in Colorado’s Non-Competition Law
The changes in HB 1317 will take effect on August 9, 2022. Although HB 1317 is prospective only, the scope of change to Colorado’s non-competition laws creates significant new hurdles to any employer looking to enforce non-competition agreements with former employees.
If you have questions or need help navigating this area of employment law, please reach out to our firm or make an appointment here. We have significant experience drafting, negotiating, and litigating non-compete agreements. We welcome your suggestions for future topics as well.
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