A Colorado Non-Compete Agreement is a contract that protects business trade secrets and the recovery of training costs for short-term employees. [1]
Effective August 10, 2022, changes to Colorado’s non-compete agreement laws [2] include significant limits to non-compete agreement enforceability. These changes are not retroactive and only apply to non-compete agreements completed after August 10, 2022.
Below, you can learn everything you need to know about non-compete agreements in Colorado, including the new changes and common questions employees may have when encountering a non-compete agreement.
Is a Non-Compete Legally Enforceable in Colorado?
Yes, non-compete agreements are legally enforceable in Colorado. However, non-compete laws in CO generally limit their use when they involve employees earning over $101,250 annually and when non-compete agreements accompany the sale of a business.
In some cases, non-compete agreements may not be enforceable. Let’s say a person gets another job with a different employer and now earns $102,000 annually. If that employee had signed a non-compete agreement with their previous employer, that employer would be unable to enforce it with this former employee.
Reasonable Use and Exemptions
Colorado’s updated non-compete agreement laws state that non-compete agreements are enforceable with reasonable duration and geographic limitations. When applicable, a CO court must determine whether the non-compete agreement’s circumstances are reasonable.
A reasonable non-compete must not cause undue hardship on an employee and not impose excessive protections.
The primary exemption to non-compete agreements in Colorado is employees who are not highly compensated.
Enforceable When Terminated Without Cause? Not decided yet
Employee Non-solicitation Agreement Permitted? Yes.
Customer Non-solicitation Agreements Permitted? Yes.
Does Continuing Employment Equal Sufficient Consideration? Yes.
Non-Compete Agreement Colorado Limitations
Time Limitations
Currently, no specific time limits have been established by the Colorado legislature for restricting the duration of a non-compete agreement. In most cases, the court has viewed two years as a reasonable time limit. However, there has been enforcement by Colorado courts to allow a time limit of more than two years in regard to non-competes.
If an employer thinks an employee has breached a non-compete agreement and wants to take the employee to court, the employer may have a better chance at winning their case if the agreement is less than three years in duration and has not stopped the employee from obtaining other employment.
*Notice*
As of August 10, 2022, businesses must notify prospective employees about their non-compete agreements. Businesses must then allow them time to review the agreement before the person accepts the job.
Existing employees of businesses with non-compete agreements must receive information regarding agreement terms at least 14 days prior to the effective dates of the covenant or the implementation of additional compensation.
Geographical Limitations
All non-compete agreements drawn up and signed in Colorado must include a statement about geographic restrictions. Most non-competes will not allow employees to work with competitors within Colorado state lines.
Although Colorado courts are not known to enforce expansive geographic restrictions, the courts have established restrictions pertaining to the geographic scope of a non-compete agreement. When dealing with a case involving geographic restrictions, Colorado courts typically review the circumstances of the case.
Colorado Non-Compete Agreement Sample
Below is a sample template for a Colorado Non-Compete Agreement that you can download in PDF or Word format.
