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Volume XII, Number 146

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Colorado Cracks Down on Restrictive Covenant Agreements, Authorizing Potential Criminal Penalties

Colorado has enlisted the help of the criminal justice system to reinforce its strong public policy against restrictive covenants. Beginning on March 1, 2022, violations of Colorado’s restrictive covenants statute, C.R.S. § 8-2-113, may subject employers to criminal liability. Under Colorado Senate Bill 21-271, which is primarily geared toward reformation of sentencing guidelines for misdemeanors and petty offenses, any violation of C.R.S. § 8-2-113 will be a class 2 misdemeanor punishable by up to 120 days in jail, a fine of up to $750, or both.

C.R.S. § 8-2-113 voids certain restrictive covenants, such as non-compete and nonsolicitation-of-customers agreements, unless they concern one or more of the following exceptions: (1) the purchase or sale of a business or its assets; (2) the protection of trade secrets; (3) the recovery of education or training expenses associated with an employee who has been with an employer for less than two years; or (4) a restriction on executive or management personnel or staff. Employers commonly rely on the second and fourth provisions to enforce noncompete and nonsolicitation-of-customers agreements. In addition to these exceptions, Colorado’s restrictive covenant statute includes two other distinct provisions. First, it is “unlawful to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he [or she] sees fit.” While this language seems broad, Colorado courts have yet to provide guidance on the provision’s true breadth. Second, the statute voids any noncompete that restricts the right of a physician to practice medicine.

Previously, a restrictive covenant that did not fall into any of the enumerated exceptions resulted in an unenforceable agreement. Now an employer that attempts enforcement of such an unenforceable agreement may be subject to misdemeanor criminal liability.

It is currently unclear how Colorado courts will apply Senate Bill 21-271’s misdemeanor provision to noncompete and customer nonsolicitation agreements, or how often the provision will be used. Senate Bill 21-271 simply states that “a person who violates [C.R.S. § 8-2-113] commits a class 2 misdemeanor,” but there is no guidance as to what will constitute a violation. Requiring an employee to sign an unenforceable noncompete or nonsolicitation agreement, attempting to enforce an unenforceable noncompete or nonsolicitation agreement, and/or threatening to enforce an unenforceable noncompete or nonsolicitation agreement could raise the specter of criminal penalties.

In light of this heightened liability for violations of Colorado’s restrictive covenants statute, employers may want to revisit all of their noncompete and nonsolicitation agreements to ensure they fall squarely into one of the enumerated statutory exceptions. Failure to comply may subject employers to misdemeanor criminal liability.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XII, Number 15
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About this Author

Roger G. Trim Office Managing Shareholder  Denver Employment Law, Wage and Hour, Drug Testing, Unfair Competition and Trade Secrets, Leaves of Absence/Reasonable Accommodation
Office Managing Shareholder

As one of the founding attorneys of Ogletree Deakins’s Denver Office, Roger G. Trim’s practice focuses exclusively on representing and counseling employers in a broad spectrum of employment matters including discrimination, retaliation, harassment, wrongful discharge, breach of contract and noncompete cases. Mr. Trim has successfully defended employers in litigation involving Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Pregnancy Discrimination Act, the Family Medical and Leave Act, the Colorado Anti-Discrimination Act, the Colorado Wage...

303-764-6805
Raul Chacon, Ogletree Deakins Law Firm, Labor and Employment Litigation Attorney
Associate

Raul represents employers in a broad range of employment law matters. He has litigated single plaintiff suits, and has experience in a variety of employment litigation matters, including wage and hour and discrimination litigation. He has extensive experience in litigation in both federal and state courts, as well as in responding to charges brought before state and federal administrative agencies.

Raul received his J.D. from Emory University School of Law, where he was elected to the Order of the Coif. During law school, Raul served as a...

303-764-6806
Andrew S. Haring Employment Litigation Attorney Ogletree, Deakins, Nash, Smoak & Stewart Cleveland, OH
Associate

Andrew represents employers in all types of employment litigation in both federal and state courts, in labor and employment arbitration proceedings, as well as before various administrative agencies, including the Equal Employment Opportunity Commission, the National Labor Relations Board, and the Ohio Civil Rights Commission. He has experience defending employers against employment discrimination claims, sexual harassment claims, retaliation claims, claims under the Family and Medical Leave Act, wrongful discharge claims, and breach of contract claims. Andrew also has appellate experience...

216-274-6922
Associate

Becca is an associate attorney in the Ogletree Deakins Denver office. Becca defends employers of all sizes in claims brought under federal and state employment laws. Becca also assists clients with various employment issues, including, but not limited to, investigations of complaints, wage and hour issues, workplace health and safety, and personnel policies.

Becca received her J.D. from the University of Denver Sturm College of Law with a certificate in Workplace Law. While in law school, Becca received the John Phillip Linn Labor Law Award for...

303-318-7492
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