What happened?

On May 31, 2024, the Governor of Colorado signed House Bill 24-1324, titled “Attorney General Restrictive Employment Agreements,” putting into place a law to toughen protections for employees who are subject to abusive contracts ostensibly requiring repayment to employers for education and training expenses upon termination of employment, commonly referred to as “TRAPs” (Training Repayment Agreement Provisions)

What are the details?

General Bites:

• For an employer to recover the expense, the training must comply with rules promulgated by the attorney general regarding the transferability of the training or credentialing that is available to the employee because of the training.

• This amendment follows the trend of state crackdowns on the use of post-employment restrictions with employees, particularly the FTC ban on non-competes (you can read our previous update here.)

Key Bites for Employers:

• The law aims to prevent abuses by employers using Training Repayment Agreements (TRAPs) to demand repayments or penalties not tied to actual training expenses.

• The law expands previous restrictions for TRAPs and increases penalties for overbroad or abusive agreements.
  • Such overboard occur when a company:
    
    (a) seeks recovery beyond training costs,
    (b) requests reimbursement after recouping training investment,
    (c) demands repayment for non-transferable training or training without certification, or
    (d) establishes harsh repayment terms.

• The Attorney General has the authority to enforce the new bill and can recover three times the amount of the attempted recovery by the employer, in addition to a $5,000 penalty, plus attorneys’ fees, costs, and interest.

• The new Colorado law gives the Attorney General the power to regulate restrictive employment agreements.

Business Considerations

• Employers should review their existing employment agreements, particularly those that include Training Repayment Agreement Provisions (TRAPs), to ensure they comply with the new Colorado law. This includes ensuring that any repayment provisions are reasonably tied to the actual training expenses incurred by the employer.
• According to Seyfarth Shaw law firm, employers should also consider the recent rule adopted by the FTC banning non-competes, with limited exceptions. If TRAPs function as non-competes, they may be banned under this rule.
• Employers should assess the viability of their training programs and the cost of such programs under the FTC rule. If the benefits to an employer for such investment cannot be reasonably realized and/or violate the new Colorado law, adjustments may need to be made.
• Employers should update their policies and procedures to reflect these changes. This includes updating training repayment agreements to ensure they comply with the new law.

Source References

• CO HB 24-1324 – Attorney General Restrictive Employment Agreements

This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.