Many companies across the United States have embraced non-compete agreements as a standard practice when onboarding a new employee. Those who leave may have also been asked to sign. Businesses may see departing staff as a threat because they can work for the competition and share all the knowledge and experience they gained from their previous employment. Workers may also decide they can do better independently, taking lucrative accounts and professional connections with them.
In recent years, these types of covenants have lost favor in the courts, with judges ruling that former employers cannot restrict the worker’s ability to earn a living and advance their career. It is now to the point where some states’ courts are not enforcing these contracts.
Restrictive Employment Agreement Act
Colorado changed its non-compete laws under the Restrictive Employment Agreements Act (REAA), which took effect on August 10, 2022. Unlike some other states, REAA is not retroactive. Still, all new contracts signed after that date must comply with the law’s conditions or face fines of up to $5,000 per worker as well as damages, injunctive relief, legal fees, and reasonable costs. Violations could also involve criminal charges.
The law also applies to confidentiality agreements, no-business agreements, nonsolicitation agreements, no-recruit agreements, payment-for-competition agreements, and training reimbursements agreements. These changes apply to contractors, consultants and employees earning over $101,250. The former employee cannot solicit business from a former account if they earned at least $60,750.
Notice of restriction
New employers must also provide notice at least 14 days before the new hire’s start date that they must sign a non-compete agreement. Rather than bury the agreement amid the general contract, the notice must be a separate document signed willingly by the employee. It must identify the covenant and its restrictions and include a copy of the agreement.
Protect your future interests
It’s best never to sign a contract you don’t understand or have questions about. Businesses and prospective employees can discuss these changes with someone who drafts and enforces employment law agreements.