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How can companies prevent workers from competing unfairly?

On Behalf of | Dec 7, 2023 | Employment Law |

Competition helps drive innovation and can motivate workers. However, competition can also damage a business when it is unfair or illegal. Those running successful companies often worry that the talent they recruit may eventually go on to unfairly compete against the company later.

The best option for addressing employee competition with a company involves preventing it ahead of time. Businesses can take certain steps while negotiating employment contracts to limit the likelihood of a worker going on to unfairly compete with the business.

How can an employer limit unfair worker competition without violating Colorado state law?

Including protective terms in employment contracts

An employment contract outlines what a company expects from a worker and also what the worker can receive from the company if they do their job well. Sometimes, employment contracts include more details than that, including restrictive covenants.

A restrictive covenant prohibits certain behavior, often even after a worker exits their role at a company. Non-compete agreements are among the best-known restrictive covenants. Colorado employers can still theoretically use non-compete agreements. However, state lawmakers have recently acted to restrict when non-compete agreements are enforceable in civil court.

Employers cannot threaten workers to get them to sign such agreements, and they generally need to include reasonable limitations on the agreement. An agreement that forbids direct competition for a few years after an employee exits a company is easier to enforce than an agreement that theoretically lasts forever.

Sometimes, companies may decide that a non-solicitation agreement might be a better option. Non-solicitation agreements are subject to less scrutiny than non-compete agreements in many cases. They do not prevent the worker from accepting a job or starting a company. Instead, they prohibit workers from trying to hire their former co-workers or from attempting to poach customers and clients after leaving a business.

If a business has proof that a worker directly violated a restrictive covenant by starting a company, taking a job or approaching clients they knew through their job, the business affected by that misconduct may have grounds to take that former worker to court.

Ultimately, integrating the right terms into worker contracts can significantly decrease the likelihood that an employee can harm a business after ending their employment there.

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