Colorado Poised To Further Restrict Post-Employment Restrictions

• Published date: 10 August 2022
• Subject Matter: Employment and HR, Intellectual Property, Contract of Employment, Trade Secrets
• Law Firm: Seyfarth Shaw LLP
• Author: Mr Jesse Coleman and Kevin Mahoney

On August 10, 2022, Colorado's new statute further restricting non-competition and non-solicitation provisions becomes effective. The new law, which passed earlier this year, continues Colorado's trend toward increased scrutiny of post-employment restrictions and adds Colorado to the growing list of states that restrict the use of out-of-state choice of law and forum provisions in agreements that contain such restrictions.

Colorado's existing law

Our colleagues' description of Colorado's previous statutory framework for restrictive covenants are available here. Briefly, Colorado's previous law invalidated non-compete restrictions unless they fell into one of four categories: (1) covenants made in connection with the purchase and sale of a business, (2) covenants made for the protection of trade secrets, (3) covenants for the recovery of expenses incurred in educating and training employees who were employed for less than 2 years, and (4) covenants for executive and management personnel (and their professional staff) and officers. C.R.S. ' 8-2-113. Those exceptions, while limited, still allowed employers a fair amount of leeway in the use post-employment restrictions, particularly for highly-compensated individuals or those with access to an employer's sensitive information.

Colorado's trend away from that relatively permissive framework became apparent in March, when it became the first state to impose misdemeanor criminal liability for the use of "force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation." While it remains to be seen whether that criminal liability applies to just asking an employee to sign an unenforceable restrictive covenant or if some actual attempt at enforcement is required (there are no indications that any criminal charges have yet been filed under the statute), it appeared as though additional restrictions on non-compete and non-solicit covenants were on the horizon.

Colorado's House Bill 22-1317 and its implications

Colorado's legislature wasted no time in following up on its criminalization of overbroad restrictive covenants. House Bill 22-1317 ("the Act") was passed in May and signed by Governor Jared Polis on June 8, 2022, making it effective on August 10, 2022. As our colleagues previously noted, the Act imposes significant new restrictions on the use of non-competition and non-solicitations restrictions, bars out-of-state choice of law or forum provisions in many instances...