Across the country, states continue to pass or modify their non-compete laws, from Washington D.C. to Nevada to Colorado. And more changes are likely on the horizon as we enter 2023.
The new Colorado law continues to build upon recent changes in other states. The Colorado Senate recently passed House Bill 22-1317 to amend its existing non-compete statute, C.R.S. § 8-2-113. The new amendments are effective as of August 10, 2022 and do not impact agreements that workers signed prior to that date.
Following the trend in other states, Colorado will mandate certain compensation thresholds for non-compete and non-solicit agreements. The new amendments prohibit non-compete agreements for employees making less than the compensation threshold for “highly compensated workers” in Colorado, which is currently $101,250. The law also prohibits non-solicitation clauses with employees who do not make at least 60% of the amount for “highly compensated workers,” or currently $60,750. Employees must meet the requirements both at the time of signing and at the time that the employer attempts to enforce a non-compete agreement.
In addition, non-compete and non-solicit restrictions are only enforceable if they apply to a company’s trade secrets. There is a higher bar that information must meet to be considered a “trade secret” as opposed to simply “confidential” information.
Employers must provide notice to employees of their non-compete obligations. New employees must receive notice prior to the start of their job. For existing employees, the employer must provide the employee with 14 days’ notice before the terms of an agreement can take effect. The notice must be made in a separate document with “clear and conspicuous terms in the language,” and the worker must sign the document.
The Colorado amendments further prohibit an employer from attempting to change the legal forum in which a non-compete lawsuit can be filed. If the worker primarily resided or worked in Colorado at the time of the termination, the amendments specifically require all non-compete lawsuits to be filed in Colorado and for Colorado law to apply.
The new amendments also include penalties. If an employer violates the law, the employer is liable for actual damages and a penalty of $5,000 per worker, and may also be liable for attorneys’ fees. Either the worker or the attorney general’s office can file a lawsuit. But if the court determines that the employer acted in good faith and with reasonable grounds, then the court may deny a penalty even if the employee wins the lawsuit.
As is typical in other states, the amendments do not apply to confidentiality terms or similar clauses concerning the acquisition of a business, such as those contained in sale of business or purchase agreements. In addition, the amendments do not apply to recovering expenses for training workers or money towards a scholarship for employees working in an apprenticeship.
We’ll continue to monitor these changes to non-compete laws across the U.S. and will cover changes in Washington D.C. and Nevada in future posts.