It is not uncommon for an employer to require employees to sign a non-compete agreement, also called a covenant not to compete. Although the details of non-compete agreements can vary quite a bit, these agreements generally prohibit one party to the agreement from competing with the other party, for example by entering the same profession or trade.
These agreements can be detrimental to the livelihood of the party that is prohibited from competing. This often occurs when the agreements extend beyond the period of employment, prohibiting a former employee from finding a new job working in the same profession.
Enforceability of Non-Competition Agreements in Colorado
Under Colorado law, there is a strong presumption that covenants not to compete are void and unenforceable. However, this presumption can be overcome and non-compete agreements can be valid in specific circumstances.
These circumstances are clearly outlined in Colorado’s non-compete statute(Co. Rev. Stat. Sec. 8-2-113):
- Contracts for the purchase and sale of a business or assets of a business;
- Contracts for the protection of trade secrets;
- Contractual provisions providing for the recovery of expense of training or educating an employee who has been with an employer for less than two years; and
- Contracts with executive and management personnel and their professional staff.
Additional Requirements for the Enforceability of Non-Compete Agreements
Even if a non-compete agreement fits into one of the exceptions listed above, it must still satisfy several other requirements in order to be enforceable. These requirements generally require that the restriction imposed by the non-compete agreement be “reasonable.” In effect, this can be broken down into three different requirements.
The covenant not to compete must be for:
- A reasonable period of time;
- A reasonable geographic scope; and
- A reasonable scope of business activities.
Although there is no clear line for what is reasonable and what is not, certain cases can be used as guidelines. For example, in Reed Mill & Lumber Company, Inc. v. Jensen(2006), the Colorado Court of Appeals noted that covenants not to compete within a 100-mile radius and for terms of up to five years are commonly upheld.
Colorado Non-Competition Attorneys
Much of the litigation over non-compete agreements involves either 1) whether an employee falls within the executive and management exception or 2) whether the agreement is reasonable. Because there are no clear guidelines on either of these issues, it is important to consult with an experienced employment attorney who is familiar with Colorado cases on these issues.
At HKM Employment Attorneys LLP, we have experience advocating for employees who are attempting to invalidate a non-compete agreement. We also represent employers who are attempting to enforce an agreement.
If you are an employee or an employer and have questions about a non-compete agreement, get in touch with HKM Employment Attorneys LLP today. You can contact us online or call us at 303-991-3075 for a private consultation.