Effective August 10, 2022, employers who aim to protect business interests by requiring employees in Colorado to sign non-compete and customer non-solicit agreements will face new challenges under amendments to Colorado's restrictive covenant law. Key provisions include the following:
- Post-employment non-compete agreements, including customer non-solicitation agreements, are presumed void unless all of the following are established:
- For a non-compete agreement, the employee is “highly compensated” at the time of signing and termination, with annual earnings at or above the Colorado Department of Labor and Employment’s highly compensated worker threshold (currently $101,250 per year, to be increased each year);
- For a customer non-solicit agreement, the employee earns at least 60% of the highly compensated worker threshold (currently $60,750 per year, to increase each year);
- The agreement is for the purpose of protecting trade secrets; and
- The agreement is no broader than reasonably necessary to protect the employer’s interest in protecting its trade secrets.
- Employers must provide a separate written notice of the terms of a non-compete and/or customer non-solicitation agreement:
- For a prospective employee, the notice must be given before the individual accepts a job offer.
- For current employees, notice must be given at least 14 days prior to the effective date of the agreement or the effective date of additional compensation or other change in conditions of employment that provides consideration for the agreement, whichever is earlier.
- Notices must be signed by prospective and current employees.
- Non-compete and/or customer non-solicitation agreement with employees who primarily work or live in Colorado at the time of termination will be governed by Colorado law, and employers may not require employees to adjudicate them outside of Colorado.
- The amendments apply to agreements entered into on or after August 10, 2022, but they do not apply retroactively to agreements signed before that date.
- Violations of the amended law can result in penalties up to $5,000 per employee or prospective employee. The amendments also provide a private right of action to individuals, who may recover actual damages, declaratory/injunctive relief, and attorneys’ fees and costs.
- The amendments do not affect employee non-solicitation agreements, restrictive covenants related to the sale of a business, agreements for the recovery of training and educational expenses, and “reasonable” confidentiality agreements, as defined by the statute.
If your organization has or plans to hire employees in Colorado, please reach out to your partners at Lake Effect to ensure you comply with the amended non-compete and customer non-solicitation agreement requirements.
Lake Effect is here to answer your questions about restrictive covenants and applicable state laws. We continue to monitor important legal and HR pments that affect employers. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at firstname.lastname@example.org or 1-844-333-5253.