A Colorado non-compete agreement allows a company owner to temporarily restrict the signing party’s ability to work in a similar field. In Colorado, non-competes between an employer and their employee are mostly void, with the exception of “highly compensated workers” or employees who received specialized job training. Generally speaking, these contracts are only permitted in the purchase of a business to prevent the seller from forming a similar company. For an agreement to be enforceable, the preparer must prove it to be reasonable in duration and geographic scope.
A non-compete agreement can be enforced in the purchase of a company to limit the seller’s ability to create a similar business. In general, non-competes between an employee and employer are unlawful, though a few exceptions are permitted. Non-competes that fall under one of these exceptions must be proven by the owner of the agreement to be reasonable in duration and area.
- Sale of a business. There is a statutory exception that allows a covenant not to compete in the purchase of a business.
- Highly compensated workers. An employer may impose a non-compete to protect trade secrets in the case of “highly compensated” workers. “Highly compensated” is defined as a salary equal to or greater than the threshold amount established by the Division of Labor Standards and Statistics.
- Employees. Besides the above exceptions, employers may not require an employee to enter into a non-compete agreement.
- Physicians. A non-compete agreement may not limit physicians’ ability to continue their medical practice. However, all other provisions in the agreement are enforceable to allow an employer to recover damages incurred by termination of an agreement, including damages resulting from competition.
- Lawyers. A non-compete agreement limiting a lawyer’s right to practice law is unenforceable.
While there is no legal time limit determined by Colorado statutes, previous court cases have determined that the following requirements must be met for the contract to be deemed valid:
Non-compete agreements that do not specify a geographic restriction are not enforceable. The same metrics used to determine the reasonableness of the duration of the non-compete will also apply to the geographical limit.
The reasonableness of the restrictions will be determined case-by-case based on the circumstances of the parties and the terms of the contract. Larger radiuses have been approved using Colorado law, as one federal court ruled to uphold a restriction that covered the entirety of the U.S.
Non-competes must include consideration as part of the agreement terms. In the past, Colorado courts have considered the following adequate consideration for a non-compete agreement:
- An at-will employee’s continuation of employment
- Providing employment that was previously not available to a worker
- Colo. Rev. Stat. § 8-2-113(3)(c)
- Colo. Rev. Stat. § 8-2-113(2)(a)
- Electrical Distributors, Inc. v. SFR, Inc., 166 F.3d 1074, 1084 (10th Cir. 1999)
- Colo. Rev. Stat. § 8-2-113(2)(b)
- Colo. Rev. Stat. § 8-2-113(2)(c)
- Colo. Rev. Stat. § 8-2-113(5)(a)
- Rule 5.6 – Restrictions on Right to Practice, Colo. R. Prof’l. Cond. 5.6
- Knoebel Mercantile v. Siders, 165 Colo. 393, 439 P.2d 355 (Colo. 1968)
- Whittenberg v. Williams, 110 Colo. 418, 135 P.2d 228, 229 (Colo. 1943)
- Fuller v. Brough, 159 Colo. 147, 411 P.2d 18 (Colo. 1966)
- Flower Haven, Inc. v. Palmer, 502 P.2d 424, 426 (Colo. App. 1972)
- Nat’l Graphics Co. v. Dilley, 681 P.2d 546, 547 (Colo. App. 1984)
- Doubleclick Inc. v. Paikin, 402 F. Supp. 2d 1251 (D. Colo. 2005)
- Hatlee v. Hardey, Civil Action No. 13-cv-02469-RM-MJW, 24 (D. Colo. Sep. 29, 2015)
- Lucht’s Concrete Pumping, Inc. v. Horner, 255 P.3d 1058, 1062 (Colo.2011)
- Metro State Faculty v. Colorado, 32 Colo. App. 420, 514 P.2d 784, 786 (Colo. App. 1973)
- Energex Enterprises, Inc. v. Anthony Doors, Inc., 250 F. Supp. 2d 1278 (D. Colo. 2003))
Colorado Non-Disclosure Agreement – Used to limit a party’s ability to disclose confidential information.
Colorado Non-Solicitation Agreement – Contractually obligates an employee not to solicit business transactions from clients and other members of staff.