Colorado Introduces Criminal Penalties for Violations of Non-Compete Statute.

Colorado has had a statute governing non-compete agreements on the books for many years.  In general, non-compete agreements are void under Colorado law.  There are limited exceptions for: (a) restrictions in a contract for the purchase or sale of a business or the assets of a business; (b) contracts protecting trade secrets; (c) contracts that allow for the recovery of expenses incurred educating or training an employee who has worked for the employer for less than two years; and (d) contracts between employers and executive and management personnel and officers and employees who constitute professional staff to executive and management personnel.  C.R.S. § 8-2-113(2).  Non-compete agreements must also be reasonable in terms of the geographic and temporal scope to be enforceable.

Effective March 1, 2022, Colorado added a criminal penalty to the statute, which now provides that “a person who violates this section commits a class 2 misdemeanor.”  C.R.S. § 8-2-113(4).  Also effective March 1, 2022, a class 2 misdemeanor carries penalties of a jail term of up to 120 days, a fine of between up to $750, or both.  If the crime occurred before March 1, 2022, the penalties could be jail time up from three to twelve months and/or a fine between $250 and $1,000.

It is not yet known how the courts will enforce this new criminal penalty.  Will such a penalty apply to asking an employee to sign an unenforceable non-compete?  Will it apply only when an employer tries to enforce an invalid non-compete?  In short, we just don’t know yet.  This legal development provides an opportunity for Colorado employers to review any non-compete agreements (including non-solicitation agreements) they may have with employees and work with counsel to determine compliance.  Contact Katie Pratt at Wells Anderson & Race, LLC to discuss your company’s situation.