Solely One Month Till Dramatic Adjustments in Colorado’s Restrictive Covenants Legislation

As we beforehand reported, the Colorado Basic Meeting handed a invoice in Might making substantial amendments to Colorado’s noncompete statute, CRS 8-2-113. Governor Jared Polis signed the invoice on June 8, 2022, that means the amendments will go into impact at 12:01 am on August 10, 2022, which is just 4 weeks away. That will sound like a very long time, however it should go by rapidly.

As an preliminary matter, one factor Colorado employers ought to recall is that, regardless of the language within the amendments referring broadly to “covenants to not compete,” it additionally applies to buyer non-solicitation covenants. Because the preamble to the amendments expressly states:

The Basic Meeting intends to protect the present state and federal case legislation in impact earlier than the efficient date of this Act that: (a) defines what counts as a covenant to not compete that’s prohibited by this part; and (b) specify the extent to which a covenant to not compete for the safety of commerce secrets and techniques have to be tailor-made in scope with a view to be enforceable underneath this part.” (Emphasis added).

That is essential as a result of Colorado courts have utilized the strictures of CRS 8-2-113 to buyer non-solicitation covenants, in addition to conventional noncompetes, “as a result of an settlement to not solicit clients is a type of an settlement to not compete.” Phoenix Capital, Inc. v. Dowell, 176 P.3d 835, 844 (Col. App. Ct. 2007). As well as, the amendments additionally expressly apply not solely to staff, but additionally to impartial contractors (collectively known as “employees”).

Colorado employers must also notice that, though the amendments usually are not retroactive—that means that the discover (and different) provisions don’t apply to current agreements with employees—there’s a threat {that a} Colorado court docket might nonetheless resolve to make use of the amendments as a guidepost in ruling on the enforceability of current agreements – specifically on the injunction stage when courts are making equitable determinations. However that’s not a purpose, in and of itself, to have current employees signal new/up to date agreements at this cut-off date, in our view, as the chance is small. Certainly, different states have rejected related arguments the place the statute in query was not retroactive. See, eg, NuVasive, Inc. v. Day954 F.3d 439, 444 (1st Cir. 2020) (holding that the Massachusetts Noncompetition Settlement Act doesn’t symbolize basic Massachusetts coverage with respect to agreements entered into earlier than efficient date of the Act) (quoting Automile Holdings, LLC v. McGovern, 483 Mass. 797, 807 n.15 (2020) (“The laws applies solely to worker noncompetition agreements entered into on or after October 1, 2018”)).

With all of this in thoughts, Colorado employers ought to take the next motion between now and August 10, 2022, to make sure compliance with these amendments:

  • Noncompete Compensation Thresholds: guarantee that non-compete agreements with new employees and new/up to date non-compete agreements with current employees adjust to the minimal compensation threshold of $101,250 per yr (which might be adjusted yearly by the Division of Labor Requirements and Statistics within the Colorado Division of Labor and Employment). Employees making lower than this quantity can’t be topic to non-compete agreements in Colorado.
  • Buyer Non-Solicit Compensation Thresholds: guarantee that buyer non-solicitation agreements with new employees and new/up to date buyer non-solicitation agreements with current employees adjust to the minimal compensation threshold of $60,750 per yr (once more, topic to annual changes). Employees making lower than this quantity can’t be topic to buyer non-solicitation agreements in Colorado.
  • Commerce Secret Necessities: Replace each noncompete and non-solicitation covenants, if crucial, to clarify that they’re supposed to guard commerce secrets and techniques and be sure that the covenants aren’t any broader than crucial to guard commerce secrets and techniques.
  • Confidentiality Limitations: Replace confidentiality/nondisclosure provisions for brand new employees and/or current employees who might be receiving new/up to date confidentiality/ nondisclosure provisions to state clearly that the provisions don’t prohibit the disclosure of (a) info arising from the employee’s basic coaching, data, expertise , or expertise, whether or not gained on the job or in any other case; (b) info that’s readily ascertainable to the general public; or (c) info that the employee in any other case has a proper to reveal as legally protected conduct. On the very least, don’t try to implement confidentiality/nondisclosure provisions towards employees who disclose the recognized classes of data. (And consider our latest publish on the necessity to embody language expressly carving out disclosures to the Securities and Trade Fee.)
  • Selection-of-Legislation and Discussion board Choice Clauses: Take away any non-Colorado choice-of-law and/or discussion board choice clauses from restrictive covenants agreements for brand new employees and/or current employees who might be receiving new/up to date agreements. Though different states might acknowledge provisions that determine their state’s legislation courts despite this legislation, a Colorado employee can file a declaratory judgment motion in a Colorado court docket to invalidate the availability(s) and could also be entitled to his or her attorneys’ charges and statutory penalties.
  • Discover Necessities: Put together notices for brand new employees and/or current employees who might be receiving new/up to date agreements. The notices have to be: (a) contained in a separate written doc; (b) written “in clear and conspicuous phrases within the language during which the employee and employer talk”; (c) signed by the employee (separate and aside from the signature required on the restrictive covenant settlement itself); (d) embody the settlement containing the restrictive covenants; (e) determine the restrictive covenant settlement by title and state that it comprises a covenant that might limit the employee’s future employment choices; and (f) direct the employee to the precise paragraphs of the settlement that include the restrictive covenants.

Lastly, Colorado employers needs to be conscious that violations of the legislation can topic them to legal responsibility for precise damages, plus a $5,000 penalty per harmed employee or potential employee. And they need to recall that an earlier modification to CRS 8-2-113 criminalized violations of the statute. As such, it’s particularly essential that these new amendments are thought-about and carried out on or earlier than August 10, 2022.

Please attain out to any member of EBG’s Commerce Secret & Worker Mobility apply group or your EBG contact to debate these essential updates additional.