On March 1, 2022, Colorado Senate Bill 21-271 (SB 21-271) goes into effect. This new law will make the violation of a number of statutes, including Colorado’s non-compete law, C.R.S. § 8-2-113, a criminal offense, specifically a class 2 misdemeanor. See Colorado Senate Bill 21-271, Section 81.
In Colorado, covenants not to compete that restrict the right of any person to receive compensation for the performance of skilled or unskilled labor are void unless one of the following four exceptions are met:
- Any contract for the purchase and sale of a business or the assets of a business
- Any contract for the protection of trade secrets
- Any contractual provision providing for recovery of the expense of educating and training an employee who was employed by the employer for less than two years
- Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel
Even if an exception applies, Colorado courts require non-compete agreements to be reasonable in temporal and geographic scope to be enforceable.
Colorado law defines “trade secret” as “the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value.” Additionally, to be a trade secret, the owner must take measures to prevent the secret from being disclosed without protection. As of March 1, employers taking an overly broad interpretation of the above definition may subject themselves to criminal liability.
Though C.R.S. § 8-2-113 also addresses unlawful worker intimidation and non-compete agreements for physicians, SB 21-271 makes a violation of any section of the non-compete law a class 2 misdemeanor punishable by 120 days in jail, a fine up to $750, or both. It is currently unknown how Colorado courts will interpret the new provision of C.R.S. § 8-2-113 or how Colorado will elect to enforce the new misdemeanor provision. Accordingly, Colorado employers seeking to enter into or enforce non-compete agreements, especially under the trade secrets exception, should be cautious as it is currently unclear whether attempting to enforce a void non-compete agreement, or simply asking an employee to sign a non-compete agreement not covered by one of the above exceptions, triggers a violation. Likewise, employers should carefully consider what restricted period and geographic scope are actually necessary to protect their trade secrets.