Colorado’s Restrictive Employment Agreements Act went into effect on August 10, 2022, significantly limiting the enforceability of non-compete agreements and other post-termination restrictive covenants executed after that date. The law is not retroactive, so any agreements signed prior to August 10, 2022 are unaffected, but any new restrictive covenants entered into on or after that date will be void if they fail to comply with the new requirements. Failure to comply may subject employers to criminal liability and fines. Importantly, the limitations apply to all “workers” and therefore apply to independent contractors and consultants, in addition to employees.
Non-Compete Covenants
Non-compete agreements and covenants will be void and not enforceable unless the impacted worker meets certain salary thresholds for “highly compensated” workers at the time the agreement is entered and at the time it is enforced. Currently, a worker must earn $101,250 annually for noncompete agreements to be enforced.
Non-Solicit Covenants
Customer non-solicitation agreements and covenants are only enforceable if the impacted worker earns at least 60% of the “highly compensated” threshold, so currently $60,750 annually. The law does not specifically address limitations on employee non-solicit covenants.
Confidentiality/Non-Disclosure Covenants
Reasonable confidentiality provisions with employees, consultants and contractors are permissible if they do not prohibit disclosure of information that (1) arises from the worker’s general training, knowledge, skill or experience, whether gained on the job or otherwise; (2) is readily ascertainable to the public; or (3) a worker otherwise has a right to disclose as legally protected conduct. This change will require employers to review their confidentiality, non-disclosure and employment agreements used with workers to remove or modify violating provisions.
Notice
Employers must provide notice of non-compete and/or customer non-solicitation restrictions to prospective employees before they accept an offer of employment, and to existing employees at least 14 days before the effective date of such restrictions. The notice must be provided in a separate document signed by the employee that (1) references the restrictive covenant agreement by name; (2) states the that the agreement contains a restrictive covenant; (3) identifies where in the agreement the restriction is located; and (4) contains a copy of the agreement.
Choice of Law Requirements
For employees residing or working in Colorado at the time of separation from employment, all disputes must be adjudicated in Colorado courts and under Colorado law.
Enforcement and Penalties
In addition to criminal penalties, violating employers may be liable for a penalty of $5,000 for each worker or prospective worker, as well as actual damages, injunctive relief, reasonable costs and attorneys’ fees.
Colorado employers should seriously consider the continued use of restrictive covenants, as the risk of penalty for noncompliance is severe. If a restrictive covenant is deemed necessary, please contact us for assistance. Additionally, employers should revise the confidentiality restrictions in their agreements with employees to ensure that they do not prohibit disclosure of information in violation of the new requirements.
