Colorado Becomes First State to Criminalize Void Non-Compete Agreements

January 13, 2022

Colorado recently became the first state to criminalize the use of void non-compete agreements. The law goes into effect on March 1, 2022 and makes it a class A misdemeanor for employers to implement void restrictive covenants.

Denver, Colo. (January 13, 2022) - Colorado recently became the first state to criminalize the use of void non-compete agreements. The law goes into effect on March 1, 2022 and makes it a class A misdemeanor for employers to implement void restrictive covenants.

In Colorado, non-compete covenants are void unless they relate to contracts for: (1) for the purchase and sale of a business or the assets of a business; (2) for the protection of trade secrets; (3) for the recovery of the expense of educating and training an employee under certain conditions; and (4) for executive and management personnel.

Thus, for example, an employer who asks an employee with no access to trade secrets to sign a non-compete agreement may be subject to criminal liability under the new statute.

Employers should note that Colorado's restrictive covenants statute remains unchanged, as do the provisions on the enforceability of restrictive covenants. Therefore, if companies are following the law, which has existed for some time, there should be no violation. As of March 1, what changes is a potential criminal penalty for violating the restrictive covenants statute.

Many questions remain about the enforcement of this criminal statute and whether it may apply to employers that threaten employees with termination if they do not sign a void non-compete agreement. Employers in the Centennial State should review their non-compete agreements and internal policies about which employees are required to sign such agreements to make sure they do not unknowingly violate this new law.

For more information on this development, contact the authors of this alert. Visit our Trade Secrets & Non-Compete Disputes Practice page for additional alerts in this area.

Authors:

Elisaveta Dolghih, Partner

Jon Olafson, Partner