Non-Compete Agreements – When are they Enforceable?

As a business owner, you’d probably like to limit your former employees from taking the skills, information and “know how” learned at your company to a competitor. You may be able to accomplish this feat by having them sign a non-compete agreement or restrictive covenant during the hiring process— but beware! Colorado law is quite strict on the requirements non-competes must meet to be enforceable.

Generally, Colorado is not fond of non-compete agreements because of their potential to hamper healthy competition in the marketplace and potentially infringe on an employee’s ability to earn a living.

By statute, non-compete agreements are void unless they fit into strict categories, which are as follows:

(a) Any contract for the purchase and sale of a business or the assets of a business;

(b) Any contract for the protection of trade secrets;

(c) 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

(d) Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel.

If a non-compete agreement falls into one of the exempt categories, the party seeking to enforce it must also show that restrictions on employment are reasonable in duration, geographic scope and the type of industry and level of restrictiveness involved.

All restrictions on employment in a non-compete agreement must be considered in light of the type of employment, the real competition, and importance or value of the confidential information.  Some Courts have held that up to five years and within 100 miles are reasonable limitations, while other Courts under different circumstances permitted much shorter durations with a smaller geographic reach.

Note that if a court finds a non-compete unreasonable, it may choose to modify the agreement (also called applying the “blue pencil rule”) to loosen up its restrictions.

Overall, non-compete agreements are a tricky area of Colorado employment law because they can often be difficult to enforce. If you’d like to learn more about how to enforce non-compete agreements in Colorado, let’s talk. Call Ball & Barry Law at (720) 439-2530 or send us a message today.

Oct 15th, 2018   Ball Barry
Business Law, Closely-Held Business, Employment Law

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