Colorado Enacts Criminal Penalties for Restrictive Covenants Violations
Author: Robert S. Teachout, XpertHR Legal Editor
January 11, 2022
Employers in Colorado who require an employee to enter into an unlawful noncompete agreement soon may face criminal penalties. A provision included in S.B. 271 will make violations of the restrictive covenants law a Class 2 Misdemeanor, effective March 1, 2022.
In Colorado, any noncompete agreement, including customer nonsolicitation clauses, is void unless it meets one of the following exceptions:
- Contracts for the purchase and sale of a business or the assets of a business;
- Contracts for the protection of trade secrets;
- Contracts for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years; or
- Where the individual subject to the covenant is executive and management personnel or an officer or employee who constitutes professional staff to executive and management personnel.
Under the new amendment, however, an employer who knowingly implements an unlawful noncompete agreement, (e.g., with a low-wage employee with no access to company trade secrets) commits a crime subject to penalties of up to 120 days' imprisonment, a $750 fine per violation or both.
Colorado joins several other states that have recently amended their restrictive covenants laws. At the start of the year, Illinois enacted amendments to its Freedom to Work Act, increasing the salary threshold for employees to $75,000 to be subject to a noncompete agreement and codifying the state's common law under which a noncompete or nonsolicitation agreement is illegal and void. Washington State increased the earnings limit for noncompete agreements to about $107,000 per year for an employee and $268,000 for an independent contractor, while Oregon limited the enforceability of noncompete agreements to no more than 12 months.