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In Colorado, “Low Wage” Now Means Six-Figures For Non-Competes

On June 8, 2022, Colorado Governor Jared Polis signed Colorado House Bill 22-1317 (the “Bill”), which was passed by the Colorado Legislature on May 10, 2022. Effective 90 days from the end of the legislative session – on August 10, 2022 – Colorado will join the ranks of IllinoisWashington, and other states that have prohibited non-competes for employees earning below a certain wage threshold.  Colorado, which has a notable recent history of hostility towards non-competes – including the threat of criminal penalties – is also poised to now impose significant financial penalties on employers for violating the Bill.

The Bill voids “any covenant not to compete that restricts the right of any person to receive compensation for performance of labor for any employer,” unless the individual is a “highly compensated worker[]” – a threshold that begins at $101,250 in 2022, and will be adjusted annually by the Colorado Department of Labor. Colorado’s new limit is in-line with the very top of the “low wage” non-compete thresholds set by Washington state and Oregon.

The Bill’s prohibitions will also apply to customer non-solicits, but excludes employees earning equal to or greater than 60% of the highly compensated threshold – roughly $60,750 in 2022.

Confidentiality provisions relevant to the employer’s business are still permissible under the Bill, as long as they do not prohibit disclosure of information relating to the worker’s “general training, knowledge, skill, or experience, whether gained on the job or otherwise.” Additionally, covenants for the purchase and sale of a business are also still permissible.

Notably, the Bill states that an employer may now be “liable for actual damages and a penalty of five thousand dollars per worker or prospective worker harmed by the conduct. The Attorney General and any worker or prospective worker harmed by an employer’s conduct may bring an action for injunctive relief and to recover penalties.” Critically, the Bill does not define what constitutes “harm” in this context, or how an employee will prove “actual damages,” which will likely lead to significant questions and disputes between employers and employee’s-counsel.

All restrictive covenants must be provided to a prospective employee before they accept their offer of employment, and to a current employee at least 14 days before the effective date of the covenant. All notices of a restrictive covenant must: (1) be provided with a copy of non-compete; (2) identify the agreement by name and state that the agreement contains a non-compete; and (3) direct the worker to specific sections or paragraphs of the agreement that contain the non-compete.

Finally, as we have seen in other states, the Bill proclaims an employee who primarily resides in Colorado may not be required to adjudicate the validity of their non-compete outside of Colorado. However, in light of the Supreme Court’s Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, 571 U.S. 49 (2013) decision, the enforceability of this provision is questionable.

Fortunately for employers, the Bill only applies to covenants entered into or renewed on or after the Bill’s effective date.

© 2023 Proskauer Rose LLP. National Law Review, Volume XII, Number 161
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About this Author

Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm
Partner

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S....

312-962-3545
Joseph C O'Keefe Labor Employment Attorney Proskauer Rose Law Firm
Partner

Joseph C. O'Keefe is a partner in the Labor & Employment Law Department.

For more than 25 years, Joe has litigated employment disputes of all types, on behalf of employers, before federal and state courts, arbitral tribunals (e.g. FINRA and AAA), and state and federal administrative agencies. Joe has litigated employment-related lawsuits alleging discrimination and sexual harassment, whistleblowing, non-competition/trade secret matters, compensation disputes, breach of contract, defamation, fraud and other business related torts. Joe’s practice includes representing clients...

212.969.3019
Daryl Leon, Proskauer Law Firm, Labor and Employment Litigation Attorney
Associate

Daryl Leon is an associate in the Labor & Employment Law Department and a member of the Firm's Employment Litigation & Arbitration Group.

Daryl has experience in managing all aspects of litigation, including taking and defending depositions, motion practice, oral arguments, and trials. His practice focuses on defending employers in state and federal court lawsuits and administrative agency proceedings against claims of discrimination, harassment, whistleblowing and retaliation, and violations of wage and hour laws. He has represented...

212-969-3262
Associate

Sydney Cone earned her J.D. from Tulane University Law School, where she was the Senior Online Editor of the Tulane Maritime Law Journal and co-president of Tulane Women in the Law.

Prior to law school, Sydney was a paralegal for Lankler, Siffert, and Wohl, LLP, focusing on white collar criminal and civil litigation.

504.310.3043
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