Written By:
Debra Fowler
Compliance & Training Manager
On June 8, 2022, Governor Polis signed HB 22-1317 [2022a_1317_signed.pdf (colorado.gov)] which limits the use of Restrictive Employment Agreements in Colorado.
This law will take effect on August 10, 2022, and will impact Colorado employers that use restrictive covenants for employees, such as non-compete agreements, non-solicitation agreements, non-disclosure agreements, etc.
When this new law takes effect, employers will only be able to have “highly compensated” employees (meaning they make over $101,250 annually) sign a non-compete agreement, as long as the agreement isn’t overly broad and is for the protection of company trade secrets. Employers that want to have employees sign a non-solicitation agreement will have to make sure the employee is earning at least 60% of the highly compensated employee compensation amount, and again cannot be more broad than necessary to protect a company’s trade secrets.
Employers must also take a look at the confidentiality and non-disclosure agreements they ask employees to sign to ensure they are “reasonable” and do not prohibit disclosure of information from an employee’s general training, knowledge, skill, or experience, information that is available to the public, and information that an employee has a legal right to disclose.
Be sure to also review the new law’s notice requirements for new employees and candidates. Employers will have to provide a candidate a copy of the restrictive employment agreement before they even make an offer of employment; existing employees must be given a copy of the restrictive employment agreement a least 14 days before the effective date of the agreement, and at least 14 days before any change in compensation or terms and conditions of employment take effect. An annual requirement to provide a copy of the restrictive employment agreement upon request to an employee is also included.
The penalties for violating the new law include employer liability for actual damages, and an additional $5000 per worker or prospective worker penalty. The previous update in March 2022 also included a criminal charge of a misdemeanor, which will continue into this new law.
Employers should make sure they don’t have any blanket non-compete, non-solicitation, or non-disclosure language or agreements included in their new hire paperwork or company handbook. Employers should also prepare for the notice requirements when recruiting new talent or updating current restrictive employment agreements to ensure compliance.
An important consideration is that this law does not impact any previously executed and in effect restrictive employment agreements. Instead, this law covers any new restrictive employment agreement that is effective on or after August 10, 2022.