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Proposed Changes to Restrictive Employment Agreements Under Colorado Law

    April 21, 2022

    By Michael Santo, Managing Attorney at Bechtel & Santo

    On the docket for the remaining legislative session includes HB22-1317, which represents a substantial change to the current status of restrictive employment agreements under Colorado law. “Restrictive employment agreement” is a term that encompasses limitations on competition and disclosure, such as agreements not to compete, not to solicit, confidentiality, and training reimbursement agreements. This update would touch on every area of restrictive employment agreement law, including adding new restrictions on covenants not to compete with “low-wage employees”, modifying the existing exemptions to restrictive employment agreements, adding notice requirements for employees, and adding penalties for enforcement of invalid restrictive employment agreements. 

    Initially, the bill declares that a restrictive employment agreement or covenant not to compete that restricts the right of any person to receive compensation for performance of labor for any employer is void, with certain exceptions. Additionally, if the employer provides proper notice of the restrictive employment agreement or covenant not to compete to the employee or prospective employee, the following agreements or covenants are not prohibited:

    • A provision providing for recovery of the expense of educating and training an employee who has served an employer for a period of less than 2 years, unless the education and training was primarily for the benefit or convenience of the employer; and
    • A reasonable confidentiality provision relevant to the employer’s business that does not prohibit disclosure of information that arises from the employee’s general training, knowledge, skill, or experience, whether gained on the job or otherwise, or information that is readily ascertainable to the public; and
    • Agreements or covenants with a person earning annual cash compensation greater than the threshold amount for highly compensated employees (as defined by the Colorado Department of Labor); and 
    • Covenants for the purchase and sale of a business or assets of a business. 

    In order for the identified agreements listed above to be enforceable, employers must comply with the following notice provisions:

    • Each worker must be provided notice of the terms of a covenant not to compete, in writing.
      • For new workers, notice must be provided before the worker accepts the offer of employment.
      • For existing workers, notice must be provided at least 14 days before the earlier of (i) the effective date of the covenant; or (ii) the effective date of any consideration or change in the terms and conditions of employment that provides consideration for the covenant. 

    This notice must be on a separate document, signed by the employee, and clearly state the terms of the agreement. Employees may request a copy of this agreement once per year, and the employer is obligated to provide a copy. 

    Additionally, the bill limits choice of law and choice of venue provisions in restrictive employment agreements and covenants not to compete. In other words, if an employee primarily resides in Colorado at the time of termination, the terms of any restrictive employment agreement must be enforceable under the laws of Colorado. Finally, the bill prohibits an employer from entering into, presenting to an employee or prospective employee as a term of employment, or attempting to enforce any restrictive employment agreement or covenant not to compete that is void under the bill. An employer who violates this provision is subject to a penalty of $5,000 for each employee or prospective employee, injunctive relief, and actual damages.

    There are more proposed changes to Colorado HR and employment law currently on the Senate and House floors. We will keep you and your organization apprised of developments as they occur. Be on the lookout for more legislative updates from COSHRM. 

    Questions? Contact COSHRM’s Legislative Director, Michael Santo