Colorado Tightens Restrictions on Noncompete Agreements: New Restrictions for Health Care Workers and Sale-of-Business
In the latest round of Colorado’s annual updates to its noncompete statute, C.R.S. § 8-2-113, Colorado enacted Senate Bill 25-083 this summer, which added new restrictions relevant to health care workers and in the sale-of-business context. The amendments to the statute further restrict noncompete and non-solicitation agreements for physicians and other health care workers. The amendments also cap the duration of noncompete and customer non-solicitation clauses in sale-of-business agreements involving minority owners.
I. Health Care Workers
Prior to the 2025 amendments, Colorado law prohibited noncompete agreements with physicians, restricting the physicians’ right to practice medicine but allowed physicians to agree to a liquidated damages provision (to be imposed at the termination of employment), so long as the liquidated damages were reasonably related to the injury suffered by improper termination or competition.
The 2025 amendments extend the ban on health care noncompetes — in addition to physicians — to encompass individuals licensed to practice medicine (including physician assistants), registered to engage in the practice of advanced practice registered nursing, licensed to practice as a certified midwife, or licensed to engage in the practice of dentistry. The 2025 amendments remove the statutory text allowing for liquidated damages-for-competition provisions, making it unclear whether such provisions will be enforceable against health care workers going forward.
The 2025 amendments do not prohibit non-solicitation of employees or confidentiality clauses with health care workers. But the 2025 amendments prohibit agreements that restrict health care workers’ right to inform their patients about their continued medical practice, providing their new professional contact information, or informing patients about their right to choose their health care provider.
II. Sale-of-Business: The Amendment Limits the Duration of Noncompete and Customer Non-solicitation Agreements for Minority Business Owners
Colorado law generally enforces noncompete agreements entered in connection with the sale of a business. Under the 2025 amendments to the statute, however, new restrictions apply to noncompete and customer non-solicitation clauses entered into with minority business owners. A minority business owner is defined as “an individual who owns a minority ownership share of the business and who received their ownership share in the business as equity compensation or otherwise in connection with services rendered.”
Specifically, to enforce such restrictions, the buyer must pay the seller enough compensation to meet a set formula that compares the post-sale duration of the restrictive covenant to the amount of consideration received by the minority business owner. The formula takes the total consideration received by the minority owner and divides it by the average annual cash compensation received by the minority owner in the previous two years. For example:
- Example A: Minority owner’s average annual earnings in the past two years is $200,000.00 from cash compensation. Minority owner made $100,000.00 from the sale of the business. The noncompete agreement cannot exceed six months because 100,000 ÷ 200,000 = 0.5.
- Example B: Minority owner’s annual earnings in the past two years is $100,000 per year in cash compensation and $100,000 per year in ownership draws, for a total annual average earnings of $200,000.00. Minority owner made $200,000.00 from the sale of the business. The noncompete agreement cannot exceed one year because 200,000 ÷ 200,000 = 1
- Example C: Minority owner’s annual earnings two years ago was $100,000 in cash compensation and $200,000 per year in ownership draws (total $300,000), and one year ago was only $100,000 in cash compensation with no ownership draws (total $100,000), equaling average annual earnings for the last two years of $200,000.00. Minority owner made $400,000.00 from the sale of the business. The noncompete agreement cannot exceed two years because 400,000 ÷ 200,000 = 2.
The 2025 amendments are not retroactive and apply only to agreements entered into or amended on or after August 5, 2025. And, as a reminder, employers who violate C.R.S. § 8-2-113 may be found guilty of a Class 2 misdemeanor and may also be liable for actual damages and a $5,000 penalty per harmed employee or prospective employee. Thus, employers need to carefully assess their template agreements and update them to reflect Colorado’s ever-changing noncompetition requirements.
Conclusion
In light of these new restrictions, all Colorado employers expecting to enter noncompete agreements in connection with the sale of a business, regardless of industry, as well as health care employers entering into restrictive covenants with physicians, nurses, dentists, or physician assistants, should work with counsel to make sure their agreements meet these new standards for those contexts. Because the amendments are not retroactive, employers likely do not need to amend existing agreements to bring them into compliance with the new law. State law regarding noncompetition agreements is frequently changing, so employers are encouraged to take a close look at their agreements to determine whether there is a reason to update them. We will continue to monitor and report on developments in this highly dynamic area of Colorado employment law.
