On June 8, 2022, Governor Jared Polis signed HB 22-1317 (passed by the Colorado legislature in May 2022) into law. This legislation will significantly restrict the enforceability of non-competition and non-solicitation agreements in Colorado. The new law will become effective on August 10, 2022 and apply to agreements entered on or after that date.
Under existing law, Colorado non-competition and non-solicitation agreements are deemed “void,” except in the following limiting circumstances: (1) contracts for the purchase and sale of a business or the assets of a business; (2) agreements with executives, management personnel, and their professional staff; (3) contracts for the protection of trade secrets; or (4) contracts for the recovery of expenses for educating and training an employee who has been employed for less than two years.
HB 22-1317 would limit non-competition and non-solicitation agreements to:
- Noncompete agreements accompanying the sale of a business;
- Noncompete agreements signed by “highly compensated employees,” defined in 2022 as those making more than $101,250 per year at the time the contract was entered into and at the time it is sought to be enforced;
- Non-solicitation of customer agreements that are no broader than necessary to protect the employer’s trade secrets for employees earning, at the time the contract was entered into and at the time it is sought to be enforced, sixty percent (60%) or more of the highly compensated threshold of $101,250 (2022 value) , or $60,750 per year.
Importantly, HB 22-1317 voids noncompetition and non-solicitation agreements absent notice to the employee of the agreement and its terms at least fourteen (14) days prior to the effective date of the agreement itself or the consideration (e.g., a pay raise) relied upon to support the agreement, or for prospective employees, the employee’s acceptance of the agreement. The notice must be in writing in a separate document, use clear language, and be signed by the employee.
HB 22-1317 still permits training cost recovery agreements, if the amounts sought to be recovered are reasonable and the recovery sought decreases proportionately based upon the number of months that have passed since the employee completed the training.
While confidentiality provisions are allowed, they may not prohibit disclosure of information obtained from general training, knowledge, skill or experience, information readily available to the public, or information that the employee otherwise has a protected right to disclose.
HB 22-1317 also preserves existing law that voids noncompetition agreements with physicians, but allows employers to recover reasonable damages for any such competition.
The new law also provides that a non-competition and non-solicitation agreement may not require enforcement proceedings outside of the State of Colorado.
Employees may request copies of any such agreement at least once a year.
The law imposes significant penalties for non-compliance, including a $5,000 penalty per employee if the employer enters into, attempt to enforce, or present to current or prospective employees any noncompete that is void under the new statute. The penalty is discretionary with the Court and may be avoided if the employer shows that it acted in good faith and had a reasonable belief that it was acting in accordance with the law. The law also reaffirms the existing criminal penalties for anyone who uses force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation.
If you’re looking for an expert employment law firm to help with litigation in your non-solicitation or non-compete dispute case in Colorado, look no further than Baird Quinn! Contact us today for a consultation.