Non-Compete Agreements and Criminal Law: A New Intersection
Published in BizWest’s Thought Leader Column in May 2022
On March 1, 2022, Colorado became the first state to criminalize the use of illegal non-compete agreements. Any person who knowingly uses an illegal non-compete agreement commits a Class 2 misdemeanor punishable by up to 120 days in jail, a fine of up to $750, or both.
Public policy in Colorado has long valued free competition in employment which requires employees to have the ability to move from one employer to another. As a result, Colorado law generally disfavors non-compete agreements. Some states, like California, prohibit all non-compete agreements, while others limit their use by, for example, prohibiting such agreements with low-wage employees.
Historically, Colorado law prohibits non-compete agreements except in four situations: (1) as part of the purchase and sale of a business or the assets of a business; (2) to protect trade secrets; (3) where the employee was employed 2 years or less, and the consequences are limited to recovery of education and training expenses; and (4) where the employee is an executive or manager. These exceptions have been part of Colorado law for decades. Thus, if employers are following existing law, there is little cause for increased concern.
Colorado also prohibits any person from using force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation. Unfortunately, there is little guidance interpreting what actions constitute force, threats, or other means of intimidations. With potential for broad application, employers should be cautious when looking to enforce a non-compete agreement.
Limiting non-compete agreements is a recent trend. The Obama Administration proposed the idea of limiting the use of non-compete agreements, and under the Trump Administration the Federal Trade Commission held a public workshop exploring whether it had the authority to limit non-compete agreements. In July 2021 President Joe Biden issued an Executive Order encouraging the Federal Trade Commission to ban or limit non-compete agreements.
With the additional risk of criminal liability and the ongoing trend of limiting non-compete agreements, now is the time to re-examine your non-compete agreements with your employment attorney to ensure their legality.
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