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Colorado Poised to Dramatically Limit the Enforceability of
Non-Competes and Other Restrictive Covenants for Low-Wage
Workers

Earlier this week, the Colorado state legislature voted to cross
HB22-1317, which if signed into legislation by Democratic Governor Jared
Polis, would place Colorado amongst a number of different states with the
strictest bans on restrictive covenant agreements for low-wage
employees. A spokesperson for Governor Polis has already indicated
that the governor plans to signal the invoice. If executed, the invoice
would develop into efficient 90 days after the legislature adjourns
(early August 2022), so fast and really substantial modifications
seem like proper across the Rocky Mountain street.

Key-Takeaways:

1. Any restrictive covenant executed by a Colorado employee after
   the legislation’s efficient date might be deemed presumptively
   “void.” This contains each
   non-compete and non-solicitation
   agreements. There are, nonetheless, a number of said exceptions, which
   embrace: (a) restrictive covenants related to the sale of
   enterprise; (b) restrictive covenants executed by a “extremely
   compensated employee” when the non-compete isn’t any broader than
   fairly needed to guard commerce secrets and techniques; and (c) restrictive
   covenants executed by employees incomes sixty % or extra of the
   “highly compensated worker” threshold. Under the brand new legislation,
   a “highly compensated worker” is somebody who’s at present
   incomes $101,250 per 12 months or extra.
   (NOTE: This determine is tied to the edge
   set by the Colorado Department of Labor and might be
   modified yearly.




2. Confidentiality agreements nonetheless stay legitimate however can solely be
   used if they don’t prohibit disclosure of data arising from
   a employee’s normal coaching, data, ability, or
   expertise.




3. In order for any restrictive covenant to be enforceable beneath
   the brand new legislation, the employer should present ample discover of the
   restrictions. In instances of a potential employee,
   discover should be supplied earlier than  they
   settle for the provide of employment. In instances of
   a present  employee, discover should be supplied at
   least 14-days earlier than the sooner of the
   efficient date of both the covenant or the extra
   consideration to be supplied to the employee.
   (NOTE: The legislation spells out quite a few steps
   employers should comply with to offer correct “notice.” These
   notices should: (a) be in writing and signed by the employee; (b) in a
   separate doc with clear and conspicuous language; (c) embrace
   the settlement containing the non-compete; (d) determine the
   non-compete settlement by title and state that it comprises a covenant
   that would prohibit the employee’s future employment choices; and
   (e) direct the employee to the particular paragraphs of the non-compete
   settlement that include the non-compete.




4. If the employee in query primarily resided or labored in
   Colorado on the time their employment ends, any
   “choice-of-forum” clause within the non-compete
   settlement can’t require adjudication
   outdoors of Colorado. Additionally, in these conditions, Colorado
   legislation should govern the enforceability of
   the non-compete settlement.




5. Employers may be fined $5,000 per employee if
   they enter into, try and implement, or current to any present or
   potential employee a restrictive covenant that violates the brand new
   legislation. That mentioned, the brand new legislation additionally offers Colorado judges full
   discretion to find out whether or not or to not situation a financial penalty
   (or to situation a penalty lower than $5,000), if the employer can
   efficiently exhibit that they acted in good religion and had
   cheap grounds for believing they weren’t violating the brand new
   legislation.




6. Workers and potential employees, together with the Colorado
   Attorney General, could get hold of injunctive reduction in the event that they exhibit
   a violation of the brand new legislation. Workers and potential employees, could
   additionally get better cheap attorneys’ charges and prices if they will
   set up the restrictive covenant(s) in query don’t comply
   with the brand new legislation.

In the previous six years, not less than 10 states, in addition to the
District of Columbia, have handed laws to restrict and/or
remove the usage of non-competes and different restrictive covenants
for low-wage employees. Colorado actually seems poised to affix
that ever rising listing. As such, all employers with employees in
Colorado ought to take fast steps to evaluate their agreements to
guarantee they adjust to the brand new legislation. Seyfarth will proceed to
monitor the scenario and put up extra updates on this weblog as
additional developments happen.

The content material of this text is meant to offer a normal
information to the subject material. Specialist recommendation ought to be sought
about your particular circumstances.