Solely One Month Until Dramatic Modifications in Colorado’s Restrictive Covenants Regulation

As we beforehand reported, the Colorado Primary Assembly handed a bill in Might making substantial amendments to Colorado’s noncompete statute, CRS 8-2-113. Governor Jared Polis signed the bill on June 8, 2022, which implies the amendments will go into affect at 12:01 am on August 10, 2022, which is just 4 weeks away. That may sound like a really very long time, nevertheless it ought to go by shortly.

As an preliminary matter, one issue Colorado employers should recall is that, whatever the language throughout the amendments referring broadly to “covenants to not compete,” it moreover applies to purchaser non-solicitation covenants. As a result of the preamble to the amendments expressly states:

The Primary Assembly intends to guard the current state and federal case laws in affect sooner than the environment friendly date of this Act that: (a) defines what counts as a covenant to not compete that is prohibited by this half; and (b) specify the extent to which a covenant to not compete for the security of commerce secrets and techniques and methods ought to be tailored in scope with the intention to be enforceable beneath this half.” (Emphasis added).

That’s important because of Colorado courts have utilized the strictures of CRS 8-2-113 to purchaser non-solicitation covenants, along with standard noncompetes, “because of an settlement to not solicit prospects is a kind of an settlement to not compete.” Phoenix Capital, Inc. v. Dowell, 176 P.3d 835, 844 (Col. App. Ct. 2007). In addition to, the amendments moreover expressly apply not solely to staff, however along with neutral contractors (collectively often known as “workers”).

Colorado employers additionally must phrase that, although the amendments aren’t retroactive—which signifies that the uncover (and totally different) provisions do not apply to current agreements with workers—there is a risk {{that a}} Colorado court docket docket would possibly nevertheless resolve to utilize the amendments as a guidepost in ruling on the enforceability of current agreements – particularly on the injunction stage when courts are making equitable determinations. Nevertheless that is not a goal, in and of itself, to have current workers sign new/updated agreements right now restrict, in our view, because the hazard is small. Definitely, totally different states have rejected comparable arguments the place the statute in question was not retroactive. See, eg, NuVasive, Inc. v. Day954 F.3d 439, 444 (1st Cir. 2020) (holding that the Massachusetts Noncompetition Settlement Act does not signify elementary Massachusetts protection with respect to agreements entered into sooner than environment friendly date of the Act) (quoting Automile Holdings, LLC v. McGovern, 483 Mass. 797, 807 n.15 (2020) (“The legal guidelines applies solely to employee noncompetition agreements entered into on or after October 1, 2018”)).

With all of this in ideas, Colorado employers should take the subsequent movement between now and August 10, 2022, to verify compliance with these amendments:

  • Noncompete Compensation Thresholds: make sure that non-compete agreements with new workers and new/updated non-compete agreements with current workers regulate to the minimal compensation threshold of $101,250 per yr (which is likely to be adjusted yearly by the Division of Labor Necessities and Statistics throughout the Colorado Division of Labor and Employment). Workers making decrease than this amount cannot be matter to non-compete agreements in Colorado.
  • Purchaser Non-Solicit Compensation Thresholds: make sure that purchaser non-solicitation agreements with new workers and new/updated purchaser non-solicitation agreements with current workers regulate to the minimal compensation threshold of $60,750 per yr (as soon as extra, matter to annual modifications). Workers making decrease than this amount cannot be matter to purchaser non-solicitation agreements in Colorado.
  • Commerce Secret Requirements: Change every noncompete and non-solicitation covenants, if important, to make clear that they are meant to protect commerce secrets and techniques and methods and be sure that the covenants are usually not any broader than important to protect commerce secrets and techniques and methods.
  • Confidentiality Limitations: Change confidentiality/nondisclosure provisions for model new workers and/or current workers who is likely to be receiving new/updated confidentiality/ nondisclosure provisions to state clearly that the provisions do not prohibit the disclosure of (a) information arising from the worker’s frequent teaching, data, talents , or experience, whether or not or not gained on the job or in every other case; (b) information that is readily ascertainable to most of the people; or (c) information that the worker in every other case has a correct to disclose as legally protected conduct. On the very least, do not attempt to implement confidentiality/nondisclosure provisions in the direction of workers who disclose the acknowledged courses of information. (And be conscious our present publish on the need to embrace language expressly carving out disclosures to the Securities and Change Charge.)
  • Various-of-Regulation and Dialogue board Selection Clauses: Take away any non-Colorado choice-of-law and/or dialogue board selection clauses from restrictive covenants agreements for model new workers and/or current workers who is likely to be receiving new/updated agreements. Although totally different states might acknowledge provisions that set up their state’s laws courts no matter this laws, a Colorado worker can file a declaratory judgment movement in a Colorado court docket docket to invalidate the provision(s) and is also entitled to his or her attorneys’ expenses and statutory penalties.
  • Uncover Requirements: Put collectively notices for model new workers and/or current workers who is likely to be receiving new/updated agreements. The notices ought to be: (a) contained in a separate written doc; (b) written “in clear and conspicuous phrases throughout the language whereby the worker and employer speak”; (c) signed by the worker (separate and apart from the signature required on the restrictive covenant settlement itself); (d) embrace the settlement containing the restrictive covenants; (e) set up the restrictive covenant settlement by determine and state that it accommodates a covenant that may prohibit the worker’s future employment decisions; and (f) direct the worker to the actual paragraphs of the settlement that embody the restrictive covenants.

Lastly, Colorado employers should be aware that violations of the laws can matter them to obligation for exact damages, plus a $5,000 penalty per harmed worker or potential worker. And they should recall that an earlier modification to CRS 8-2-113 criminalized violations of the statute. As such, it is notably important that these new amendments are considered and carried out on or sooner than August 10, 2022.

Please attain out to any member of EBG’s Commerce Secret & Employee Mobility apply group or your EBG contact to debate these important updates extra.