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08 Jun

June 2022: New Restrictive Employment Agreements Pass Both Houses

Posted at

9:39pm

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Update Applicable to:
All employers in the state of Colorado

What happened?
On June 8, 2022, Governor Polis signed House Bill 22-1317 (HB 22-1317) into law, which will amend C.R.S. § 8-2-113 to substantially limit the enforceability of noncompetes and other restrictive covenants for any workers other than those who are “highly compensated,” as well as imposing new, stringent notice requirements and penalties for noncompliance.

What are the details?

Post-employment restrictive covenants are presumptively void unless certain conditions are satisfied.

Any noncompete or nonsolicitation provision executed by a Colorado worker is presumptively void unless the agreement is:

  • with a “highly compensated” worker;
  • is for the protection of trade secrets; and
  • is no broader than is reasonably necessary to protect the employer’s legitimate interest in protecting its trade secrets.

This is a departure from the previous exception under Colorado law for “executive and management personnel” and their “professional staff.”

Under HB 22‑1317, a “highly compensated” worker for purposes of a noncompete is someone earning at least $101,250 per year (which will be adjusted annually by the Division of Labor Standards and Statistics in the Colorado Department of Labor and Employment).

For a customer nonsolicitation provision, the worker must earn at least 60% of the “highly compensated” amount when the agreement is signed and must also be no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets. There is no reference to employee nonsolicits in HB 22-1317, and restrictive covenants entered in connection with the sale of a business are not subject to the new requirements.

Confidentiality agreements remain valid, but are limited.

The bill permits reasonable confidentiality provisions so long as they do not prohibit the disclosure of:

  • information arising from the worker’s general training, knowledge, skill, or experience;
  • information that is readily ascertainable by the public; or
  • information that the worker otherwise has a legal right to disclose.

Physician non-competes remain prohibited, but with a new caveat.

In its current form, C.R.S. § 8-2-113 deems void “any covenant not to compete provision of an employment, partnership, or corporate agreement between physicians that restricts the right of a physician to practice medicine,” although provisions requiring the payment of damages that are “reasonably related to the injury suffered by reason of termination of the agreement,” including damages “related to competition,” are enforceable.

HB 22‑1317 now adds an exception to the damages rule that permits a physician to disclose his or her continuing practice of medicine and new professional contact information to any patient with a “rare disorder” without being subject to damages resulting from that disclosure or from the physician’s subsequent treatment of any such patient.

Notice requirements 

The bill also imposes new notice requirements. Specifically, for new or prospective workers, an employer must provide a copy of the restrictive covenants before he or she accepts an offer of employment. For existing workers, an employer must provide a copy at least 14 days before the effective date of the restrictions, or the effective date of any additional compensation or change in the terms or conditions of employment that provides consideration for the covenant. Moreover, the notice must be:

  1. contained in a separate written document;
  2. written “in clear and conspicuous terms in the language in which the worker and employer communicate”;
  3. signed by the worker (separate and apart from the signature required on the restrictive covenant agreement itself);
  4. include the agreement containing the restrictive covenant;
  5. identify the restrictive covenant agreement by name and state that it contains a covenant that could restrict the worker’s future employment options; and
  6. direct the worker to the specific paragraphs of the agreement that contain the restrictive covenants. Workers may request an additional copy of the noncompete once each calendar year, which the employer is required to provide (but not more than once per calendar year).

Penalties may be imposed for violations of the law.

In the event an employer violates the law, the employer could be liable for actual damages, plus a $5,000 penalty per worker or prospective worker harmed thereby.

Injunctive relief and attorneys’ fees are available to aggrieved workers.

Either the state Attorney General or a harmed worker or prospective worker may also pursue injunctive relief, and workers and prospective workers may also recover reasonable attorneys’ fees and costs if they can demonstrate a violation of the law.

Out-of-state choice-of-law and forum selection provisions are void.

If a worker primarily resides or works in Colorado at the time their employment ends, the employer may not require the worker to adjudicate the enforceability of the covenant outside of Colorado. Moreover, notwithstanding any choice-of-law provision to the contrary, Colorado law will govern the enforceability of any noncompete for any worker who primarily resides or works in Colorado.

This new law goes into effect on August 10, 2022.

For more information, please see the links below:

House Bill 22-1317 (HB 22-1317)

C.R.S. § 8-2-113

Colorado General Assembly Bill Summary

Article 1Article 2Article 3

What do employers need to do?
Employers should review the links provided above and consult knowledgeable counsel to ensure their existing agreements are in compliance with the new law.

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