Employers Face New Challenges Under Colorado’s Revised Non-Compete Law

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 info@le-hrlaw.com or 1-844-333-5253.

IL Passes Law Restricting Non-Competes and Non-Solicitation Agreements

On August 13, 2021 Illinois Governor Pritzker signed into law broad restrictions on employee non-competes and non-solicitation agreements. The non-solicit restrictions apply to employer’s customers, as well as other employees.

The new law applies to agreements executed with an employee on or after January 1, 2022. As of that date, the law bans:

  • Non-competes with employees earning $75,000 or less
    • The income threshold increases by $5000 every five years until it reaches $90,000
  • Non-solicitation agreements with employees earning $45,000 or less
    • The income threshold increases by $2500 every five years until it reaches $52,500
  • Non-competes and non-solicitation agreements with an employee who is terminated, laid off, or furloughed due to COVID-19 or “circumstances that are similar to the COVID-19 pandemic”
    • However, a non-compete will be enforceable if the employer includes in the agreement payment to the employee covering the employee’s salary from the date of termination through the period of enforcement minus compensation earned from subsequent employment during that period

In addition, an enforceable non-compete or non-solicitation agreement must:

  • Include a provision advising the employee to consult with an attorney before signing
  • Provide the employee at least 14 days to review the agreement before signing it
  • Offer “professional or financial benefits” or two years of employment as consideration for signing the agreement
    • “Professional or financial benefits” are not defined in the statute but generally include benefits such as a bonus or promotion

Illinois’ new law is part of a national trend to more tightly regulate  the circumstances under which employers can restrict an employee’s  post-termination activities. California bans all non-competes, with limited exceptions, and tightly restricts non-solicitation agreements. Nevada recently enacted legislation banning non-competes with hourly workers. Under Washington law, non-competes are enforceable only if, among other things, the employee earns more than $100,000 per year (adjusted annually). Washington D.C.’s law banning non-competes for virtually all employees will likely become effective some time in 2022. President Biden’s recent Executive Order charging the Federal Trade Commission to explore options to limit the “unfair use” of non-competes also reflects this growing opposition towards these types of agreements.

Employers should work closely with employment law counsel to review  applicable state laws on non-competes and non-solicitation agreements, especially for remote employees working outside of Wisconsin. An advance review may enhance the effectiveness and enforceability of your agreements. See our previous blog on other state law considerations with remote workers.

Lake Effect is here to answer your state and federal employment law and HR questions related to these and other employment agreements. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching 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 info@le-hrlaw.com or 1-844-333-5253.

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