Colorado Law May Govern Noncompete Despite Choice-Of-Law Provision

• Published date: 20 October 2021
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Contract of Employment, Employment Litigation/ Tribunals, Trials & Appeals & Compensation
• Law Firm: Bryan Cave Leighton Paisner LLP
• Author: Mr L. Anthony George

Colorado law is not particularly friendly to noncompete agreements. A Colorado statute prohibits all such agreements unless they fall within one of four specific exemptions. See CRS '8-2-113(2). When the desired agreement does not fit neatly within those exceptions, one possible approach is to choose another state's (more favorable) law to govern the noncompete agreement. However, as a recent case reminds us, that approach will not always work.

In LS3 Inc. v. Cherokee Federal Solutions, L.L.C. (D. Colo. 9/29/2021) (Brimmer, C. J.), a former employer sued several former employees for (among other things) breach of their noncompete agreements. Chief Judge Philip Brimmer of the United States District Court for the District of Colorado rejected the parties' choice of Maryland law to govern the agreements and held that the agreements were governed by - and unenforceable under - Colorado's noncompete statute.

Under Colorado law, the parties' choice of law to govern their contract will be respected unless (1) 'application of the law of the chosen state would be contrary to a fundamental policy of a state' that (2) 'has a materially greater interest than the chosen state in the determination of the particular issue.' See King v. PA Consulting Group, Inc., 485 F.3d 577 (10th Cir. 2007). In LS3, Judge Brimmer concluded that Colorado had a materially greater interest than Maryland...