Colorado legislators just passed a law to greatly restrict restrictive covenants, effectively ending the use of non-competes and non-solicitation agreements in The Centennial State. The bill voids almost all restrictive covenants used by employers after its effective date of August 10, 2022.
Colorado will join the ranks of Washington, Illinois, and other states that have prohibited non-compete agreements for employees earning below a certain wage threshold. All restrictive covenants presented to or signed by workers after the effective date will be void, with a few exceptions.
When will restrictive covenants be allowed?
There are just a few situations in which restrictive covenants will be permitted. They include:
- Those accompanying the sale of a business.
- Non-compete agreements signed by highly compensated employees, as long as the non-compete is no broader than reasonably necessary to protect trade secrets. In 2022, “highly compensated employees” earn $101,250 or more per year. The Colorado Department of Labor set this threshold; it is expected to increase annually.
- Customer non-solicitation agreements signed by workers earning 60% or more of the highly compensated employee threshold, roughly $60,750 in 2022.
- Agreements for the recovery of certain expenses of educating and training a worker.
- Confidentiality agreements are permitted, but only if they do not prohibit “disclosure of information that arises from the worker’s general training, knowledge, skill, or experience, whether gained on the job or otherwise, information that is readily ascertainable to the public, or information that a worker otherwise has the right to disclose.”
What notice must the employer give?
Even these allowed covenants will be void if the employer does not provide proper notice to the worker. In order to enact a restrictive covenant with a prospective worker, employers must provide notice before they accept the offer of employment. They must provide notice to a current worker at least 14 days before the effective date of the covenant.
All notices of a restrictive covenant must be in writing, signed by the worker, in a separate document with clear and conspicuous language, and the agreement containing the non-compete must be provided at the same time. The writing must identify the non-compete agreement by name, and state that it contains a covenant that could restrict the worker’s future employment options. Finally, it must direct the worker to the specific sections or paragraphs of the agreement that contain the non-compete.
What is the penalty for non-compliance?
An employer who violates this provision is subject to a penalty of $5,000 per employee, plus compensatory damages and attorneys’ fees. This can add up fast if a business’s agreements are not current and enforceable. Keep in mind that an employer risks this penalty by simply presenting an unlawful restrictive covenant to the worker, even if the worker never signs it or the employer never tries to enforce it.
Now is a good time to check your employment agreements and adjust them for compliance with Colorado law. If you have any employees who live in Colorado, your business must comply with these employment laws in order to avoid litigation and potentially large penalties.
SixFifty can help! Our Employment Agreements toolset helps companies to create customized contracts, policies, and documents that comply with all state and federal employment laws. We are continuously monitoring this dynamic area of the law and updating our tools with changes in real time. We send regular updates explaining how laws have changed, and we even include the recommended language for the agreements.
If you are ready to get started or have any questions, schedule a demo with SixFifty today!