Major Shifts in Non-Compete Agreements in Colorado

In a significant move, Colorado lawmakers recently passed legislation that reshapes the landscape of non-compete agreements, particularly for lower-wage workers. Expected to be signed into law by Governor Jared Polis and effective from August 10, the bill imposes restrictions on the use of non-compete clauses, aiming to protect the rights of workers and foster a more equitable employment environment.

Understanding Non-Compete Agreement

Non-compete agreements traditionally limit where employees can work after leaving a job, preventing them from joining a competitor or starting a competing business within a specified geographical area and timeframe. While these agreements have been commonplace across various industries, the recent Colorado law aims to curtail their application for lower-wage workers, acknowledging the potential adverse effects on innovation and career mobility.

Key Provisions of the Colorado Law

The new legislation sets a clear threshold by limiting non-competes to individuals earning more than $101,250 per year. Representative Kerry Tipper, the bill's prime sponsor, highlighted that such agreements can stifle innovation, impede talent recruitment, and hinder career progression. The law is poised to virtually end most non-compete practices in the state, marking a significant shift in employment dynamics.

Michael Greco, an attorney in the Denver office of Fisher Phillips, emphasized that the law not only restricts non-competes but also empowers workers and the state attorney general to address violations through legal action. He explained that all restrictive covenants, including non-compete and non-solicitation agreements, presented to or signed by workers after the effective date will be void.

Exceptions and Permitted Agreements

While the law takes a firm stance against non-compete agreements, it allows for certain exceptions:

1. Non-competes accompanying a sale of the business.

2. Non-competes signed by highly compensated employees, defined as those earning more than $101,250 per year.

3. Non-solicitation agreements signed by workers earning 60% or more of the highly compensated employee threshold, or $60,750 per year.

4. Permitted confidentiality agreements and training cost recovery agreements, provided the amount sought to be recovered is reasonable.

Impact on Employers and Compliance Measures

Colorado's legislation aligns with a broader trend in several states that have imposed stricter limitations on restrictive covenant agreements for low-wage workers. Employers with workers in Colorado are urged to review their agreements promptly to ensure compliance with the new law.

Employers must now provide applicants with notice about non-compete agreements and allow them to review the clauses before accepting a position. For prospective workers, the notice must be given before accepting the offer of employment, while for current workers, it must be provided at least 14 days before the effective date of either the covenant or additional consideration.

Non-compliance with the new law could lead to significant penalties, including a $5,000 penalty per employee for entering into, attempting to enforce, or presenting void non-compete agreements.

While the law introduces stricter regulations, there is room for discretion in penalties if employers demonstrate good faith and reasonable grounds for believing they were not in violation.

As the employment landscape continues to evolve, the Colorado legislation reflects a commitment to balancing the rights of workers with the needs of employers. Navigating these changes requires a proactive approach from businesses, ensuring compliance with the new law and fostering a fair and transparent work environment. Stay tuned for further updates as we delve deeper into the evolving dynamics of employment regulations. 

Source: https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/colorado-to-restrict-noncompete-agreements-lower-wage-workers.aspx