Major Changes to Noncompete Laws in Colorado

In 2022, Colorado lawmakers passed legislation that will significantly limit the use of noncompete and nonsolicitation agreements for many workers. The law will go into effect on August 10, 2022. It applies to all Colorado employers or businesses that employ a person who primarily lives or works in Colorado. This includes Colorado school districts, charter schools, and nonprofits.

What is a Noncompete Clause?

Noncompete clauses are often used in employment contracts to place limits on where employees can work after they leave a job. These agreements prohibit an employee from starting a competing business or working for a competitor within certain geographical limits and for a certain length of time. Nonsolicitation clauses prohibit employees from soliciting the employer’s clients or customers for the employee’s own benefit or for the benefit of a competitor after leaving the employer.

What are the new rules?

All restrictive covenants presented to or signed by workers after the effective date – including noncompete and nonsolicitation agreements – will be void. There are a few limited exceptions where noncompete/nonsolicitation agreements may still be used:

• Noncompete agreements accompanying a sale of business.

• Noncompete agreements signed by “highly compensated employees,” defined as those making more than $101,250 per year.

• Nonsolicitation agreements signed by workers earning 60 percent or more of the highly compensated employee threshold, or $60,750 per year.

Confidentiality agreements that do not include noncompete or nonsolicitation clauses will still be permitted and will become much more important in Colorado workplaces given the impending limitations.

One additional new requirement is that all employers must notify applicants about any noncompete agreements within their employment contracts and have them review the clauses before accepting the position. Applicants must sign a separate document with clear language agreeing to any noncompete clause. This requirement also applies to current workers who are agreeing to a noncompete clause.

All employers with workers in Colorado should take immediate steps to review their agreements to ensure they comply with the new law. Employers may be subject to significant damages for noncompliance, including a $5,000 penalty per employee “if they enter into, attempt to enforce, or present to current or prospective workers any noncompete that is void under the new statute.”