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2 important limits Colorado places on non-compete agreements

On Behalf of | Aug 6, 2023 | Employment Law |

Restrictive covenants have long been important inclusions in modern employment contracts. Companies in Colorado help to mitigate the liability that comes with each new hire by restricting their activity while employed at the company and even after they leave the organization in the future.

Non-compete agreements are some of the most common restrictive covenants included in employment contracts and are also among the most controversial. Unlike other states, like California, Colorado does not strictly prohibit the use of non-compete agreements. However, the state does limit their enforcement and restrict when employers can require workers to sign them. As a result of these restrictions, the two issues below will have a major influence on whether or not an employer can take a former worker to court when they have opened a competing business or gone to work for a direct competitor of their former employer.

The worker should receive competitive compensation

In some states, employers bind even custodial professionals and line cooks with non-compete agreements, leaving people trapped at a specific job and terrified of the idea of entrepreneurship. In Colorado, restrictive covenants like non-compete agreements are only viable if a company can show that the worker bound by the agreement qualifies as a highly-compensated professional. Low-paid workers in non-competitive fields and unspecialized professions likely won’t face civil litigation even if they go to work for a competitor or start a competing business of their own.

The worker should receive something of valuable consideration

For a non-compete agreement to be enforceable, there will usually need to be very specific terms set within the restrictive covenant. It is common for employers to limit how long the agreement lasts after someone ends their employment arrangements and also the geographic area to which the agreement applies. The courts very rarely agree to enforce overly-broad restrictive covenants. Additionally, the worker signing away their rights to compete in the future will generally need to receive something of valuable consideration for making that concession. An employment offer, a promotion or even a one-time bonus of a single vacation day could be the consideration that a worker received for signing that agreement.

Provided that employers adhere to best practices, they can potentially take a former employee to court if they violate the terms of a restrictive covenant and compete unfairly. Pursuing civil litigation can be a way for a business to protect its trade secrets and to prevent unfair competition from former employees.

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