The Colorado legislature recently passed HB 22-1317, which dramatically revises Colorado’s statute governing covenants not to compete, C.R.S. § 8-2-113. The bill is expected to be signed by Governor Polis in the near future and take effect on August 10, 2022. Roughly half of the text in the noncompete law will be new, and significant chunks of the prior version are deleted entirely.
Among the most critical changes are the following. This is not intended to be exhaustive. The bill:
- Eliminates the language that permitted reasonable noncompetes for “executive and management personnel and officers and employees who constitute professional staff to executive and management personnel.” This will make it more difficult for hospitals and other health care entities to enforce covenants with non-physician professionals.
- Restricts noncompetes for the protection of trade secrets to narrowly tailored covenants with employees who at that time of entering into the covenant and at the time of enforcement are highly compensated employees as determined by the Colorado Department of Labor and Employment. In 2022, the annual salary threshold is currently $101,250.
- Restricts covenants not to solicit customers to narrowly tailored covenants with employees who make 60% of the “highly compensated” employee salary threshold.
- Revises the law regarding recovery of expenses of training and education for new employees and apprenticeship scholarships.
- Requires a notice form separate from any other paperwork to be signed by the employee giving notice of the terms of any covenant not to compete before the covenant is entered into.
- Imposes a $5,000 fine per worker affected by a covenant that is void under the statute and authorizes a private cause of action for declaratory or injunctive relief by any affected employee or prospective employer, plus attorney fees, costs and actual damages, with the fine (but apparently not the attorney fees or damages) subject to remittance in the court’s discretion if the employer’s mistake was made in good faith based on a reasonable belief that the covenant was not void.
The section of the statute addressing physician noncompetes is unrevised, but the new notice requirement will apply to physicians, as will the statutory penalty and attorney fees if a physician’s covenant is found to be void.
Practical Takeaways
The changes to the noncompetition law in Colorado are very significant and employers who wish to enter into or enforce restrictive covenants in Colorado should carefully review the changes to the law in its entirety.
Employers who have entered into noncompetition agreements and restrictive covenants with employees should review those agreements again, in light of the new law. Further, Colorado organizations should review their practices regarding restrictive covenants to ensure compliance before August 10, 2022.
If you have any questions regarding noncompetition agreements and restrictive covenants under Colorado law, please reach out to:
- Brian Sabey at briansabey@wp.hallrender.com;
- Mark Sabey at marksabey@wp.hallrender.com;
- Mary Kate Liffrig at mliffrig@wp.hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer an individual’s questions that may constitute legal advice.
