Subtitle: 
How to make sure your non-competition agreements comply with Colorado law
Important Tip The key to crafting an enforceable non-compete agreement is to insure it relates to one of the four permissible exceptions to the general prohibition against them, and that it is reasonable in scope. Careful consideration of what is absolutely necessary to protect your business’ interests will help to ensure that your non-compete agreement will be upheld, should it ever be challenged.

A non-competition agreement is a restriction on an individual’s right to engage in business activity in competition with another business.  There are a variety of reasons an employer may wish to require an employee to agree to such restrictions.  But Colorado restricts their use in all but a hand full of circumstances.  The reason behind this is Colorado’s strong policy in support of citizens’ rights to earn a living, a right that is impaired when an individual agrees not to compete with another business.  However, there are four specific exceptions where non-compete agreements may be permitted if they are reasonable in purpose, duration, and geographic scope.

1)    A contract for the purchase or sale of a business.  Here, the non-compete agreement serves to protect the buyer from a seller’s solicitation of customers, and the good will inherent in the purchase.  Courts have held that a restriction on competition must be no greater than necessary to protect the value of the good will purchased by the buyer. 

2)    A contract to protect trade secrets.  A non-compete agreement to protect trade secrets must be reasonably limited in scope to the purpose of protecting trade secrets.  Under Colorado law, trade secrets include scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, and listings of names, addresses, or telephone numbers.  To protect the trade secret status, the owner must have taken steps to prevent the secret from public disclosure.

3)    A contract allowing an employer to recover the expense of educating and training an employee who has served for a period of less than two years.

4)    A contract that applies to executive and management personnel and officers and employees who constitute professional staff to executive and management personnel. 

Whether a particular duration or geographic scope is “reasonable” under Colorado law depends on the facts of each case.  Courts have held that the central concern in both determinations is whether the restrictive provision is necessary to safeguard the plaintiff's business.  Colorado courts have enforced non-competition agreements with durations extending from six months to perpetuity and geographic scopes ranging from county to nation-wide. Covenants not to compete for terms up to five years and within distances of 100 miles are commonly upheld.

The most common remedy ordered by courts where a valid non-compete agreement has been breached is injunctive relief prohibiting the employee from competing against the former employer.  In some circumstances, actual monetary damages may be awarded.  But they are often too difficult to ascertain.

There are no hard and fast rules for crafting a legally enforceable non-compete agreement.  Since enforceability is such a fact-specific inquiry, employers seeking to enter into such agreements with employees should consult their attorney for advice.

 

Additional Information
Important Tip: 
The key to crafting an enforceable non-compete agreement is to insure it relates to one of the four permissible exceptions to the general prohibition against them, and that it is reasonable in scope. Careful consideration of what is absolutely necessary to protect your business’ interests will help to ensure that your non-compete agreement will be upheld, should it ever be challenged.
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drafting your employment agreements