Colorado Joins Movement to Limit Non-Competes to High Earners

23 May 2022 Labor & Employment Law Perspectives Blog
Author(s): John F. Birmingham, Jr.

Coming just a few months after criminalizing the enforcement of illegal non-competes , Colorado has placed further limitations on restrictive covenants. On May 10, 2022, the Colorado legislature passed HB22-1317, narrowing the permissible scope of non-competes. 

Except in the context of sale of a business or recoupment of training/education expenses, the validity of a non-compete will now be conditioned on both whether the restriction is narrowly drawn to protect trade secrets, and whether the employee meets the “highly compensated” test. That test currently requires annual income in the six figures – at least $101,250 -- and will be adjusted annually by the Colorado Department of Labor. The bill allows non-solicitation provisions, which place a lesser burden on employee movement, for employees making 60% of the highly compensated employee standard. The statute also requires cases involving Colorado employees to be litigated in Colorado under Colorado law, imposes notice obligations, and provides for damages, attorney fees, and a $5,000 per employee penalty for violations.    

Colorado’s legislation follows a nationwide trend originally sparked by the enforcement of non-competes against lower paid employees (e.g. sandwich makers). At least ten other states have banned enforcement of non-competes against low wage earners, with Washington and Oregon also setting six-figure thresholds. These laws can create complications for employers paying based on commissions, and for employees who initially earn less than six figures but cross the threshold as time transpires. The notice requirement imposed by some states creates further uncertainty.

And where is the federal government? As we reported last summer, in July 2021, President Biden issued his Executive Order on Promoting Competition in the American Economy directing the FTC to limit or ban non-competes, especially with respect to low wage earners. The FTC has moved slower than the states, but more recently has asked for public comment and conducted workshops, so we should expect something soon.        

In light of what has occurred and what is portended:

  1. in states setting a wage threshold, employers should work with counsel to modify the non-competes to meet the standard and consider adjusting compensation for key employees who are close to the threshold;

     

  2. even in states without a minimum standard, employers should review the positions subject to a non-compete and strongly consider limiting non-competes to those whose employment with competitors would pose an unfair competitive threat and who are high wage earners; and

     

  3. companies should evaluate tightening and justifying their restrictive covenants.

Stay tuned. 

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights