Employers include non-compete clauses in employment contracts with startling regularity. However, Colorado only allows for the enforcement of such clauses in exceedingly limited circumstances, and even in these instances, the bar to enforce them is high. This article outlines the basics of these potentially intimidating, and often unenforceable, clauses.
Colorado generally views non-compete provisions as unenforceable. C.R.S. § 8-2-113(2) lays out the specific instances in which a non-compete is enforceable:
- In the sale of a business or assets of a business,
- When protecting trade secrets,
- Provisions to recover training and education expenses when the employee has worked for less than two years for the employer, and
- Executive and management personnel or officers, or professional staff for such officers. Any non-compete clause that does not fit within these four exceptions is presumptively void.
Even if there is a non-compete clause that does fit within the four exceptions, the clause is not necessarily enforceable. To be valid, the limitations on other future employment must be reasonable. In this context, reasonableness is determined by evaluating both the length of time the clause applies for and the geographic breadth. Any non-compete that is deemed unreasonable on these grounds is considered void.
There is no bright line test for determining what will be considered unreasonable. To be enforceable, the terms must not be greater than necessary, so any language must be fairly limited in scope and closely matched to the purpose of the non-compete clause.
Despite the absence of a hard and fast rule, there has generally been an acceptance of terms spanning “five years and within distances of 100 miles.” Harrison v. Albright, 577 P.2d 302, 305 (Colo. App. 1977). In addition, the Supreme Court of Colorado has ruled that non-compete clauses must be supported by consideration to be valid and enforceable.
Essentially, the employee must receive a benefit from the employer in exchange for including a non-compete clause. While this may seem like an added hurdle to enforcing such a provision, courts are exceedingly deferential to parties in determining consideration and reluctant to evaluate such consideration. While Colorado has determined that non-compete agreements are generally against public policy, they are still enforceable in certain circumstances.
If you are entering into an employment agreement or leaving a position and have already agreed to a non-compete provision and want to know more about the enforceability and applicability of the provision to you, please contact us at Jorgensen, Brownell & Pepin, P.C. offices today.