First, in Lucht’s Concrete Pumping, Inc. v. Horner et al., the Colorado Court of Appeals considered whether an employee’s agreement not to compete must be accompanied by independent consideration. No. 08CA0936 (June 11, 2009). In the case, a Lucht’s Concrete Pumping (LCP) employee, Horner, signed a non-compete, but received no promotion, raise, or bonus in exchange for his promise. He later left the company to work for the competition, and according to LCP, his departure resulted in considerable economic detriment to LCP. When LCP sued to enforce Horner’s promise not to compete, however, the trial court, and eventually the Court of Appeals, held that the agreement was unenforceable for lack of consideration. Continued employment is not enough to make the agreement enforceable because the employer is not providing anything in exchange for that promise.
In the second case, DISH Network Corp. v. Altomari, the Court of Appeals provided clarification regarding which employees qualify as “management personnel” under Colorado’s statutory framework for covenants not to compete. No. 08CA1741 (June 25, 2009). After Altomari left DISH to work for a competitor, DISH sued, claiming that Altomari was management personnel, and he had signed a non-compete agreement. The trial court found that he was not management personnel and therefore DISH could not claim the benefit of the exception to the normal prohibition on covenants not to compete. The trial court reached this decision despite the fact that Altomari managed about 50 employees and exercised some autonomy in his decision making. The Court of Appeals reviewed that finding and determined that it was incorrect. Looking in part at the dictionary definition and common sense meaning of “management,” the court determined that “management personnel” was not restricted to “key” employees or executives. Because Altomari supervised 50 employees, was at the top of the company’s compensation scheme, was employed in a decision-making capacity, and had a certain level of autonomy, he was management personnel under Colorado law, and therefore, DISH’s agreement with him was enforceable on that basis.
Colorado employers should take away several points from these recent decisions:
- Covenants not to compete must be supported by independent consideration (such as a bonus) to which the employee is not already entitled. Often, employers execute these agreements to coincide with annual performance reviews and compensation adjustments. Consult with employment counsel about drafting and implementing non-compete agreements.
- Colorado law prohibits covenants not to compete, with some exceptions. One is for executive and management personnel, as discussed above. Work with counsel to identify employees who are decision makers and supervisors to determine whether your existing practices regarding non-competes are adequately protecting your organization.
- Non-compete agreements are also permissible to protect company information like trade secrets, regardless of whether an employee is “executive or management personnel.” As your organization’s goals and processes evolve, remember to evaluate whether sensitive information is adequately protected. HRO’s employment and intellectual property practice groups can help you identify and protect these business assets.