From time to time, this blog summarizes the state of the law in Colorado. This is not intended as legal advice, and no attorney-client relationship is created by the dissemination of this information. If you have questions about what I have written, I encourage you to contact me at kdavlin@davlinlawfirm.com. If you have specific legal questions, please contact the Davlin Law Firm, pc, and we can discuss your case.

Non-Compete Agreements

A business client recently asked if they could include a non-compete clause with an independent contractor. The short answer is “yes.” A more accurate answer is “yes, but…”

Colorado has a statute that prohibits agreements restricting competition, except for under some limited circumstances. These circumstances include:

1) contracts for the purchase and sale of a business or the assets of a business;

2) agreements with executives, management personnel, and their professional staff;

3) contracts for the protection of trade secrets; or

4) contracts for recovery of expenses for educating and training an employee who has been employed for less than two years.

The first category is broad and fairly self-explanatory. If you are buying a business, it is reasonable to expect that the people selling it to you will not turn around and start competing with you. You can contract to ensure that expectation.

The second category generally applies to people who are in charge of the business and work in an unsupervised manner. Merely giving them the title of “Supervisor” or “Account Executive” does not work. Colorado courts will look to the actual duties of the employee in question.

The third category is where many companies seek to save their non-compete clauses. However, it only applies to actual trade secrets. Client lists can fall into this category, but only if the company makes an actual effort to keep the information secret. This might include limiting access to such lists and advising employees of the secret nature of such information.

The fourth category is, again, fairly straightforward. You must take care not to overreach and lay out liquidated damages that are excessive and might be interpreted as punitive.

Even given these categories, a business must make sure that any restrictions are reasonable and only as broad as necessary to protect the business. Restrictions on geographic area, duration or scope must not overreach. If you only do business in Colorado, you can’t keep them from working anywhere in the nation.

It is important to note that the statute applies not just to non-compete agreements, but also to non-solicitation clauses as well as non-disclosure agreements (NDA’s). Make sure that your contracts meet the requirements of the law, or you risk having them rewritten or even thrown out by the courts.

 

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