Non-competition agreements are becoming more common in the employment realm. The agreement requires certain employees or the sellers of a business to not compete with the business for a period of time after they leave. (Non-competition agreements may also include non-solicitation of co-employees clauses and non-disclosure agreements regarding proprietary information which will be addressed in future blogs.) If the former executives are allowed to compete without restriction, the business could easily lose key customers, depriving the business of profits. On the other hand, individuals who are restricted by a non-compete may be deprived of their ability to earn a living.
Colorado’s legislature attempted to balance these interests and adopted a statute which provides significant rights and restrictions on workplace agreements that involve non-competition. Colo. Rev. Stat § 8-2-113. The questions are: 1) whether the agreement is valid or void; and, 2) whether the restrictions are reasonable. The statute provides that all contractual restrictions on a person’s post-employment competitive activity are “void” unless they fit into one of four categories: 1) a non-compete entered into as part of the sale of a business or assets of a business; 2) non-compete entered into for the goal of protecting trade secrets; 3) the agreement recovers the training or educational costs of an employee who has worked for less than two (2) years, 4) when the non-compete is entered into between an employee and management or executive personnel or employees who constitute professional staff. Colo. Rev. Stat § 8-2-113(a-d). If a particular case is found to fall within one of the statutory exceptions, and if the restrictions are found to be reasonable under the circumstances, the courts will enforce an agreement not to compete.
For the restrictions to be reasonable, a non-compete agreement must not be broader than necessary to protect the employer’s legitimate interests, and it must not impose hardship on the employee. The Court will weigh three factors to create a reasonable agreement: 1) the duration of the agreement: how long is the employee enjoined from working; 2) the geographic scope of the agreement: where the employee is enjoined from working; 3) the scope of the agreement: what type of work the employee cannot do.
Further, a non-compete agreement must be supported by valid consideration. If the agreement is part of an initial employment offer, then employment is the consideration. If the agreement is signed by a current at-will employee, the right to continued employment is considered to be sufficient consideration. However, if the employee is not an at-will employee, then he or she will need to be provided with new value, in the form of a cash payment, salary increase, or new benefit, in order to make the agreement enforceable.
If you have a question about a non-compete; contact a lawyer to discuss your legal options.