SHARE

January 28, 2022

Colorado Enacts Legislation Authorizing Potential Criminal Liability for Employers that Violate State Noncompetition Statute

You've Reached Your
Free Article Limit This Month
Register for free to get unlimited access to all Law.com OnPractice content.
Register Now

Key Takeaways

  • A new Colorado law, effective March 1, 2022, will make violations of the state’s noncompetition statute a Class 2 misdemeanor punishable by 120 days in jail, a fine up to $750, or both.
  • Colorado’s noncompetition statute, C.R.S. § 8-2-113, prohibits the use of “force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit.

A new Colorado law, effective March 1, 2022, will make violations of the state's noncompetition statute a Class 2 misdemeanor punishable by 120 days in jail, a fine up to $750, or both.

Colorado's noncompetition statute, C.R.S. § 8-2-113, prohibits the use of "force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit." Covenants not to compete restricting the right of any person to receive compensation for performance of skilled or unskilled labor for any employer are void under the statute unless they satisfy any one or more of the following exceptions:

  1. Any contract for the purchase and sale of a business or the assets of a business;
  2. Any contract for the protection of trade secrets;
  3. Any contractual provision providing for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years; or
  4. Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel.

Covenants not to compete that satisfy one or more of the statutory exceptions must also be reasonable in time, geographic scope and scope of activities covered. Colorado courts have held that nonsolicitation of customers' provisions are also subject to C.R.S. § 8-2-113, but nonsolicitation of employees' provisions are not subject to the statute.

The statute also prohibits covenants not to compete in employment, partnership or corporate agreements that restrict the right of a physician to practice medicine, subject to certain exceptions.

The new law, SB 21-271, adds a new section to C.R.S. § 8-2-113 providing that a violation of Colorado's noncompetition statute constitutes a Class 2 misdemeanor. SB 21-271 also adjusts the penalty for Class 2 misdemeanors to 120 days in jail, a fine up to $750, or both. SB 21-271 and its provisions take effect on March 1, 2022.

At this point, it is unclear how the new misdemeanor provision of Colorado's noncompetition statute will be applied. For example, it remains uncertain whether an employer that has a good faith basis to require an existing employee to sign a covenant not to compete, send a cease-and-desist letter to a former employee, and/or file a lawsuit against a former employee will be deemed to have violated C.R.S. § 8-2-113 if the covenant not to compete is later adjudicated to be unenforceable. In light of this uncertainty, companies with Colorado-based employees or independent contractors should engage counsel to reevaluate their current and prospective noncompetition agreements and exit procedures.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

More From Duane Morris

Debt Collection in Myanmar

By LEON YEE Duane Morris March 04 , 2022

The COVID-19 pandemic triggered severe economic shock, particularly in countries like Myanmar that rely heavily on labour-intensive industries. The recent change in the government has added further concerns to the political state of Myanmar.

#MeToo Movement Inspires the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Claims Act

By EVE I. KLEIN Duane Morris March 03 , 2022

In a rare act of bipartisanship and by unanimous voice vote on February 10, 2022, the U.S. Senate passed legislation to eliminate the use of binding arbitration provisions for disputes involving sexual assault and sexual harassment. President Joe Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (HR 4445) into law on March 3, 2022.

Significant U.S. Sanctions Against Russia Create Challenges for Many Companies

By GEOFFREY M. GOODALE Duane Morris March 03 , 2022

Since Russia’s recent recognition of the self-proclaimed independence of two separatist regions of Ukraine and subsequent invasion of the country, the United States and a number of its key allies have sequentially imposed significant sanctions against Russia.

More From Employment Law

USCIS Agrees to Bundle H-4, L-2, and EAD Applications Filed with Principal's Petition

By Kristen T. Burke Greenberg Traurig January 26 , 2023

As a result of a class action lawsuit, U.S. Citizenship and Immigration Services has entered into a settlement agreement to “bundle” an application to extend or change H-4 or L-2 status and, if applicable, an employment authorization document (EAD) application, if the application is filed with the principal’s corresponding H-1B or L-1 petition.

FinCEN Proposes Rule on Access to Beneficial Ownership Information

By Marina Olman-Pal Greenberg Traurig January 24 , 2023

On Dec. 15, 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM or Proposed Rule) implementing the provisions of the Corporate Transparency Act (CTA) that govern access to beneficial ownership information (BOI) FinCEN collects and maintains.

U.S. State Department Unveils a New Refugee Program, 'Welcome Corps'

By Kristin Bolayir Greenberg Traurig January 24 , 2023

On Jan. 19, 2023, the U.S. State Department unveiled a new refugee program, “Welcome Corps,” which enables private sponsorship of refugees.

Featured Stories
Closeclose
Search
Menu

Working...