Non-compete agreements are most often found in an employment agreement, and can be the subject of concern for both employers and employees alike. They arise because business owners or employers usually want to protect confidential information or trade secrets of the business that an ex-employee may want to take with them when they go to another employer. Conversely, non-compete agreements can become troublesome to an employee when they appear to prevent an employee from opening their own business or seeking employment elsewhere. So, here’s what you need to know about non-compete agreements in Colorado...
The laws governing these agreements vary quite significantly from state to state – some states enforce them, and others will not on the belief that they restrict trade, and therefore, are against public policy. Colorado takes the position that these agreements are void; however, there are four unique exceptions in which they are actually enforceable.
In Colorado, the law provides by statute (CRS §8-2-113), that covenants not to compete (i.e. non-compete agreements) are void (i.e. unenforceable) unless they pertain to:
- The protection of trade secrets;
- The purchase or sale of a business or business assets;
- Recovery of the expense of training or educating an employee who worked for an employer for fewer than two years; or
- Executive and managements personnel and officers, in addition to individuals who are staff to executive and management personnel.
If one falls into any of the above four categories, the next step is to consider whether or not the non-compete is “reasonable.” In addition to falling into one of the above four categories, the agreement must be deemed “reasonable” to be enforceable. Reasonableness is determined by the court, which will examine a number of factors to reach their conclusion, including:1) the duration of the agreement, 2) the breadth of the geographical location covered, and 3) the scope of business activities included. For example, an agreement that prevents a doctor from practicing medicine anywhere in the world for the next thirty years, would clearly be unreasonable; and therefore, unenforceable. Oftentimes, the analysis of what is or is not reasonable can be much less clear.
Additionally, the agreement must also be supported by legal consideration. What is consideration? Consideration is a legal term, and a component of any enforceable contract. Consideration simply means that a benefit has been bargained for between the parties (often referred to as a “quid pro quo”). Colorado courts have upheld a non-compete (as having consideration) where the agreement was signed at the time of hiring; however, courts have struck down a non-compete where it was provided after the employee was employed, or in anticipation of immediate termination.
Non-competes are not viewed favorably in Colorado, but under specific circumstances, they may be enforceable. It’s always advisable to consult an experienced business attorney with respect to the enforceability of your non-compete.
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Friendly disclaimer: This post is for educational purposes only. None of this information constitutes legal advice, and shouldn't be relied on as such. If you have a specific legal problem, please contact a licensed attorney in your jurisdiction.