Colorado: Tighter Controls Coming on Restrictive Covenants

/in /by

APPLIES TO

All Employers with CO Employees

EFFECTIVE

August 9, 2022

QUESTIONS?

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(888) 378-2456

Newly passed HB 22-1317 implements severe restrictions for noncompete and nonsolicitation agreements entered into, renewed, or renegotiated on or after August 9, 2022. Specifically, noncompete agreements are restricted to “highly compensated” workers (i.e., earning at least $101,250 annually) and for the purpose of protecting trade secrets. Even so, trade secrets may only be protected as is reasonably necessary to protect an employer’s legitimate business interest in protecting them. Moving forward, the previous exception for executive and management personnel and their professional staff will no longer exist.

 

Similarly, customer nonsolicitation agreements must also be no broader than reasonably necessary to protect an employer’s legitimate interest in trade secrets. These agreements are limited to workers who earn at least 60% of the “highly compensated” amount, both at the time the agreement is entered into and when the agreement is enforced. Notably, employee nonsolicitation agreements are not addressed in the bill.

There are several exceptions to the enhanced prohibitions, such as confidentiality requirements relevant to the employer’s business that do not prohibit disclosure of information arising from the worker’s general training, knowledge, skill, or experience, information readily ascertainable to the public, or information that the worker otherwise has a right to disclose as legally protected conduct; the purchase and sale of a business or its assets; reasonable recovery of education and training expenses beyond normal on-the-job training; and scholarship repayment for an individual working in an apprenticeship if they fail to comply with the scholarship conditions.

 

If using these types of agreements, employers must provide applicants notice of the agreement terms before accepting an offer of employment, and to current employees 14 days before the agreement would go into effect or a change in the terms or conditions of employment. The notice must be in a separate document, in “clear and conspicuous terms,” and in the language used by the employer and worker to communicate. Also, the worker must sign the notice, which is a separate requirement from signing the restrictive covenant agreement itself.

 

Finally, the bill states that such agreements must be interpreted under Colorado law and enforced in Colorado when the worker primarily resides and works in Colorado. Violators of the updated law may be subject to criminal and civil penalties, including reasonable costs and attorneys’ fees.

Action Items

  1. Review the bill here.
  2. Have restrictive covenants updated by legal counsel for compliance.
  3. Have hiring procedures updated to include the required notice.
  4. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2022 ManagEase