Colorado noncompete agreements will soon see a major update.
There have been a variety of laws passed recently limiting the use of noncompetition agreements and restrictive covenants in employment contracts, and Colorado is no exception.
Colorado’s recent law (HB 22-1317) will go into effect Aug. 10, 2022, and will significantly limit the enforceability of noncompete agreements executed after that date in the state.
The law is not retroactive, however, so agreements entered into prior to Aug. 10, 2022, will still be enforceable and subject to the existing law in Colorado prior to this change.
Colorado Noncompete Agreements: What’s Changing?
The Colorado law will generally limit the use of noncompetition or non-solicitation agreements to the following:
- Noncompete agreements with highly compensated employees, defined as individuals making more than $101,250 per year
- Non-solicitation agreements with employees earning $60,750 or more (60% or more of the highly compensated employee threshold level)
- Noncompete agreements accompanying a sale of a business
To enforce a noncompete agreement or a non-solicitation agreement under the first two bullets listed above, the salary threshold level must be met at both the time the contract was signed and at the time the employer is enforcing the agreement.
If an employee moves on to a subsequent employer and has a salary under the highly compensated employee level, the first employer would not be able to enforce the noncompete with the former employee. And employers may not know what salary level their former employee has at their new job, which adds another level of complexity to this law.
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Notice of the Noncompete Agreement to Employees and Applicants
Under the new law, companies must notify applicants about noncompete agreements and allow them to review the agreement before the applicant accepts a position with the company.
Existing employees entering into noncompete agreements after Aug. 10, 2022, must receive notice of the terms of the agreement at least 14 days before the earlier of the “effective date of the covenant or the effective date of any additional compensation or change in terms or conditions of employment that provides consideration for the covenant.”
Colorado Employment Law
Under Colorado’s new law, employers who attempt to enforce a covenant not to compete that is void — or require as a term of employment a non-compete that is void — may be found liable for actual damages, reasonable costs, attorneys’ fees and statutory penalties of up to $5,000 per employee or prospective employee harmed by the company’s conduct.
Colorado’s amendment of its noncompete statute will certainly present compliance challenges for employers.
Given the increased penalties and the significant changes, employers may want to review their restrictive covenant agreements to ensure they are in compliance with existing Colorado law and make a determination on how to handle these types of agreements going forward after these changes go into effect on Aug. 10, 2022.