HB 22-1317 Impacts Colorado Businesses and Employers Starting August 2022
The 2022 Colorado General Assembly passed several bills that will impact how businesses operate in Colorado. Among them, HB 22-1317, now codified as Colo. R. Stat. § 8-2-113 (“Unlawful to intimidate worker--agreement not to compete--prohibition--exceptions--notice—definition”) is a major development impacting restrictive employment agreements such as non-competes and customer non-solicitation agreements, as well as new notice requirements, choice of law and venue provisions and enforce at your own risk. The bill was signed June 8, and the provisions of this bill apply to restrictive employment agreements entered into, or renewed, on or after the effective date of August 10, 2022.
Non-competes:
Non-compete agreements have been presumed void and unenforceable under Colorado law, with certain exceptions that allowed the noncompete to stand. HB 22-1317 narrows these exceptions, while continuing to void “any covenant not to compete that restricts the right of any person to receive compensation for performance of labor for any employer.”
Under HB 22-1317, most non-competes would be void unless the agreement is with “highly compensated” workers, for the protection of trade secrets, and no broader than is reasonably necessary to protect the employer’s legitimate interest in protecting the trade secrets. The longtime Colorado exception for executive and management personnel and their professional staff is eliminated. The longtime trade-secrets exception is now restricted to employees earning at least $101,250 annually (or the state “highly compensated” amount in effect when the covenant is executed in the future).
Here are the three criteria to enforce non-competes:
Salary: A valid non-compete agreement must be between an employer and a “highly compensated worker.” The Colorado Department of Labor and Employment (CDLE) currently identifies highly compensated workers as those earning at least $101,250 in annual salary. If a worker has been employed less than a calendar year, he or she would be considered highly compensated if the worker would reasonably expect to earn more than this amount. The compensation limit will rise to $112,500 in 2023 and nearly $124,000 in 2024, after which it will be adjusted for inflation.
Trade Secrets: The agreement must be intended for the protection of trade secrets, which current case law defines as “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” Recruiters of Boulder, Inc. v. Miller, 762 P.2d 763 (Colo. App. 1988).
Scope: The agreement must be “no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.”
Customer Non-Solicitation Agreements:
Customer non-solicitation agreements would be similarly limited: they must be no broader than reasonably necessary to protect the employer’s legitimate interest in trade secrets, and the worker must earn at least 60% of the “highly compensated” annual threshold amount when the agreement is entered into and when it is enforced, e.g., $60,750 for 2022.
New Notice Requirements:
The bill also imposes brand-new notice provisions. Either before a new worker accepts an offer of employment, or 14 days before the effective date of the restriction or change in conditions of employment for current workers, employers must give notice of the covenant and its terms. The required notice must be “in clear and conspicuous terms in the language in which the worker and the employer communicate,” and the notice must be signed by the worker (separately from the signature on the restrictive covenant agreement itself).
Choice of Law and Venue Provisions:
HB 22-1317 restricts agreements about choice of law and venue. Notwithstanding any contractual terms to the contrary, Colorado law will apply to any workers who at the time of termination of employment primarily resided and worked in Colorado. Likewise, a restrictive-covenant agreement may not require adjudication outside of Colorado.
Enforce at your own Risk:
Employers are prohibited from entering into, presenting, or attempting to enforce any restrictive covenant that is void. Violators could be liable for actual damages, plus a $5,000 penalty per worker or prospective worker harmed by the conduct. Either the state attorney general or a harmed worker may pursue injunctive relief and the penalties, plus costs and attorneys’ fees.
Other Considerations:
Confidentiality and nondisclosure agreements are unlikely to be affected so long as they are properly limited under existing law to exclude information arising from the worker’s general training, knowledge, skill, or experience, information readily ascertainable to the public.
If you have any questions about how House Bill 22-1317 will impact your business and employment agreements, contact a skilled Colorado employment law attorney at Galvanize Law.