Colorado § 8-2-113 - Unlawful to intimidate worker - agreement not to compete - prohibition - exceptions - notice - rules - definitions.

§ 8-2-113. Unlawful to intimidate worker - agreement not to compete - prohibition - exceptions - notice - rules - definitions.

(1) Legislative intent. The general assembly intends to preserve existing state and federal case law in effect before August 10, 2022, that:

(a) Defines what counts as a covenant not to compete that is prohibited by this section; and

(b) Specifies the extent to which a covenant not to compete for the protection of trade secrets must be tailored in scope in order to be enforceable under this section.

(1.5) (a) It is unlawful to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place the person sees fit.

(b) A person who violates this subsection (1.5) commits a class 2 misdemeanor, as defined in section 18-1.3-501.

(2) (a) Except as provided in subsections (2)(b), (2)(d), and (3) of this section, a covenant not to compete that restricts the right of an individual to receive compensation for performance of labor is void.

(b) Except for a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry in this state, this subsection (2) does not apply to a covenant not to compete governing an individual who, at the time the covenant not to compete is entered into and at the time it is enforced, earns an amount of annualized cash compensation equivalent to or greater than the threshold amount for highly compensated workers, if the covenant not to compete is for the protection of trade secrets and is no broader than is reasonably necessary to protect the employer's legitimate interest in protecting trade secrets.

(c) As used in this section, unless the context otherwise requires:

(I) "Annualized cash compensation" means:

(A) The amount of the gross salary or wage amount, the fee amount, or the other compensation amount for the full year, if the individual was employed or engaged for a full year; or

(B) The compensation that the individual would have earned, based on the worker's gross salary or wage amount, fee, or other compensation if the worker was not employed or engaged for a full year.

(I.3) "Health-care provider" means an individual licensed to engage in the practice of medicine, 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.

(I.4) "Practice as a certified midwife" has the meaning set forth in section 12-255-104 (7.5).

(I.5) "Practice of advanced practice registered nursing" has the meaning set forth in section 12-255-104 (8).

(I.6) "Practice of dentistry" has the same meaning as "dentistry" set forth in section 12-220-104 (6).

(I.7) "Practice of medicine" has the meaning set forth in section 12-240-107 (1) and includes practice as a physician assistant pursuant to section 12-240-113.

(II) "Threshold amount for highly compensated workers" means the greater of the threshold amount for highly compensated workers as determined by the division of labor standards and statistics in the department of labor and employment:

(A) As of August 10, 2022; or

(B) At the time the covenant not to compete is executed by the parties.

(III) In determining whether a worker's cash compensation exceeds the threshold amount, where the worker has been employed for less than a calendar year, the worker's cash compensation exceeds the threshold amount if the worker would reasonably expect to earn more than the threshold amount during a calendar year of employment.

(d) Except for a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry in this state, this subsection (2) does not apply to a covenant not to solicit customers governing an individual who, at the time the covenant is entered into and at the time it is enforced, earns an amount of annualized cash compensation equivalent to or greater than sixty percent of the threshold amount for highly compensated workers, if the nonsolicitation covenant is no broader than reasonably necessary to protect the employer's legitimate interest in protecting trade secrets.

(3) The following covenants are not prohibited by subsection (2) of this section:

(a) A provision providing for an employer's recovery of the expense of educating and training a worker where the training is distinct from normal, on-the-job training and satisfies any other requirements established by the attorney general, by rule, regarding the transferability of the training or credentialing that is available to the employee as a result of the training. The employer's recovery is limited to the reasonable costs of the training and decreases over the course of the two years subsequent to the training proportionately based on the number of months that have passed since the completion of the training, and the employer recovering for the costs of the training would not violate the federal "Fair Labor Standards Act of 1938", 29 U.S.C. sec. 201 et seq., or article 4 of this title 8; except that a public employer's recovery of the costs of the training may decrease over a period longer than two years.

(b) A reasonable confidentiality provision or trade secret provision relevant to the employer's business that does not prohibit disclosure of information that arises from the worker's general training, knowledge, skill, or experience, whether gained on the job or otherwise, information that is readily ascertainable to the public, or information that a worker otherwise has a right to disclose as legally protected conduct;

(c) A covenant not to compete related to the purchase and sale of a business, a direct or indirect ownership share in a business, or all or substantially all of the assets of a business that restricts competition by an owner of an interest in the business. For 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, the duration in years of a covenant not to compete described in this subsection (3)(c) must not exceed a number calculated by the total consideration received by the individual from the sale divided by the average annualized cash compensation received by the individual from the business, including income received on account of their ownership interest during the preceding two years or during the period of time that the individual was affiliated with the business, whichever period of time is shorter.

(d) A provision requiring the repayment of a scholarship provided to an individual working in an apprenticeship if the individual fails to comply with the conditions of the scholarship agreement.

(4) (a) Any covenant not to compete that is otherwise permissible under subsection (2) or (3) of this section is void unless notice of the covenant not to compete and the terms of the covenant not to compete are provided to:

(I) A prospective worker before the worker accepts the employer's offer of employment; or

(II) A current worker at least fourteen days before the earlier of:

(A) The effective date of the covenant; or

(B) The effective date of any additional compensation or change in the terms or conditions of employment that provides consideration for the covenant.

(b) An employer shall provide the notice required in subsection (4)(a) of this section in a separate document from any other covenants between the worker and employer and in clear and conspicuous terms in the language in which the worker and employer communicate about the worker's performance. The notice must be signed by the worker.

(c) (I) A worker may request an additional copy of the covenant not to compete required by this subsection (4) once each calendar year.

(II) An employer is not required under this subsection (4) to provide the worker with an additional copy of the covenant not to compete more than once during a calendar year.

(d) An employer satisfies the notice requirement of this subsection (4) when the notice:

(I) Is provided with a copy of the agreement containing the covenant not to compete;

(II) Identifies the agreement by name and states that the agreement contains a covenant not to compete that could restrict the workers' options for subsequent employment following their separation from the employer; and

(III) Directs the worker to the specific sections or paragraphs of the agreement that contain the covenant not to compete.

(5) A provision of an employment agreement or any other agreement enforceable at law that does not include an unlawful restrictive covenant remains enforceable and subject to any damages or equitable remedy otherwise available at law.

(5.5) A covenant is deemed a covenant that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry if it prohibits or materially restricts a health-care provider from disclosing to a patient to whom the health-care provider was providing consultation or treatment before the health-care provider's departure from a medical or dental practice the following information:

(a) The health-care provider's continuing practice of medicine;

(b) The health-care provider's new professional contact information; or

(c) The patient's right to choose a health-care provider.

(6) A covenant not to compete that applies to a worker who, at the time of termination of employment, primarily resided or worked in Colorado may not require the worker to adjudicate the enforceability of the covenant outside of Colorado. Notwithstanding any contractual provision to the contrary, Colorado law governs the enforceability of a covenant not to compete for a worker who, at the time of termination of employment, primarily resided and worked in Colorado.

(7) A worker who is a party to a covenant not to compete, or a subsequent employer that has hired or is considering hiring the worker, may seek a declaratory judgment from a court of competent jurisdiction or an arbitrator that the covenant not to compete is unenforceable.

(8) (a) An employer shall not enter into, present to a worker or prospective worker as a term of employment, or attempt to enforce any covenant that is void under this section.

(b) An employer that violates subsection (8)(a) of this section is liable for actual damages and a penalty of five thousand dollars per worker or prospective worker harmed by the conduct. The attorney general and any worker or prospective worker harmed by an employer's conduct may bring an action for injunctive relief and to recover penalties. The attorney general may recover three times the amount of any recovery or attempted recovery by an employer in violation of subsection (3)(a) of this section. In addition to injunctive relief and the penalty allowed in this subsection (8)(b), a worker or prospective worker may recover actual damages, reasonable costs, and attorney fees in any private action brought under this section.

(c) In any action brought under this subsection (8), if the employer shows that the act or omission giving rise to such action was in good faith and that the employer had reasonable grounds for believing that the employer's act or omission was not a violation of this section, the court may, in its sound discretion, award the worker or workers no penalty or award a penalty of any amount not to exceed the amount specified in subsection (8)(b) of this section.

(d) Where the attorney general has brought an action under subsection (2), (3), (4), (6), or (8)(a) of this section and has recovered actual damages, penalties, or injunctive relief pursuant to subsection (8)(b) of this section, a worker or prospective worker is precluded from recovering the actual damages, penalties, or injunctive relief that was recovered in the attorney general's action.

(9) (a) The attorney general may enforce subsections (2), (3), (4), (5.5), (6), and (8)(a) of this section.

(b) The attorney general may promulgate rules necessary to implement and enforce subsection (3)(a) of this section.

Source: L. 05: p. 161, § 3. R.S. 08: § 400. C.L. § 4164. CSA: C. 97, § 92. CRS 53: § 80-4-13. C.R.S. 1963: § 80-11-13. L. 73: p. 940, § 1. L. 82: (3) added, p. 232, § 1, effective April 6. L. 2018: (3) amended, (SB 18-082), ch. 87, p. 689, § 1, effective April 2. L. 2019: (3)(a) amended, (HB 19-1172), ch. 136, p. 1646, § 18, effective October 1. L. 2021: (4) added, (SB 21-271), ch. 462, p. 3139, § 81, effective March 1, 2022. L. 2022: Entire section amended, (HB 22-1317), ch. 441, p. 3095, § 1, effective August 10. L. 2024: (3)(a), (8)(a), and (8)(b) amended and (8)(d) and (9) added, (HB 24-1324), ch. 316, p. 2120, § 5, effective August 7. L. 2025: (2)(a), (2)(b), IP(2)(c), (2)(c)(I), (2)(d), (3)(b), (3)(c), (5), and (9)(a) amended and (2)(c)(I.3), (2)(c)(I.4), (2)(c)(I.5), (2)(c)(I.6), (2)(c)(I.7), and (5.5) added, (SB 25-083), ch. 366, p. 1983, § 1, effective August 6.

Cross references: For the "Uniform Trade Secrets Act", see article 74 of title 7.

ANNOTATION

Law reviews. For article, "Noncompetition Covenants in Colorado: A Statutory Solution?", see 52 Den. L.J. 499 (1975). For article discussing remedies available in an employee's breach of a confidential relationship with an employer regarding trade secrets, see 48 U. Colo. L. Rev. 189 (1977). For article, "Protecting Technical Information: The Role of the General Practitioner", see 12 Colo. Law. 1215 (1983). For article, "Drafting Noncompete Covenants: Statutory and Common Law Constraints", see 13 Colo. Law. 757 (1984). For article, "Drafting a Noncompetition Clause for the Colorado Contract", see 20 Colo. Law. 703 (1991). For article, "Covenants Not to Compete in the Sale of a Business: Protecting Goodwill", see 26 Colo. Law. 31 (Dec. 1997). For article, "Non-compete by Non-disclosure: The Doctrine of Inevitable Disclosure", see 28 Colo. Law. 73 (Sept. 1999). For article, "The Law of Trade Secrecy and Covenants Not to Compete in Colorado -- Part I", see 30 Colo. Law. 7 (Apr. 2001). For article, "The Law of Trade Secrecy and Covenants Not to Compete in Colorado -- Part II", see 30 Colo. Law. 5 (May 2001). For article, "Antitrust Scrutiny of Employment Restrictive Covenants", see 43 Colo. Law. 33 (Oct. 2014). For article, "Non-Compete Agreements in Colorado: A New Era", see 51 Colo. Law. 30 (Nov. 2022). For article, "Colorado's Non-Compete Statute Q&A: What Employers Need to Know", see 52 Colo. Law. 34 (Mar. 2023).

This section is directed at what may be termed unlawful picketing. People v. Harris, 104 Colo. 386, 91 P.2d 989 (1939).

This section is intended to protect employees from noncompetition clauses except in carefully defined circumstances. Colo. Accounting Machs., Inc. v. Mergenthaler, 44 Colo. App. 155, 609 P.2d 1125 (1980); Nat'l Graphics Co. v. Dilley, 681 P.2d 546 (Colo. App. 1984).

Covenants not to compete are contrary to the public policy of Colorado and are void, except for some narrow exceptions such as a covenant in a contract for the purchase and sale of a business. DBA Enter., Inc. v. Findlay, 923 P.2d 298 (Colo. App. 1996).

A covenant that fails to meet one of the exceptions defined in this section is facially void rather than voidable. Mgmt. Recruiters of Boulder v. Miller, 762 P.2d 763 (Colo. App. 1988); Harvey Barnett, Inc. v. Shidler, 143 F. Supp. 2d 1247 (D. Colo. 2001); Phoenix Capital, Inc. v. Dowell, 176 P.3d 835 (Colo. App. 2007).

Even if a noncompetition agreement is not void under this section, to be enforceable, the clause must satisfy an established rule of reasonableness as to both duration and geographic scope. Nat'l Graphics Co. v. Dilley, 681 P.2d 546 (Colo. App. 1984); Elec. Distribs., Inc. v. SFR, Inc., 166 F.3d 1074 (10th Cir. 1999).

And this established rule of reasonableness is recognized in the legislative history of this section. Nat'l Graphics Co. v. Dilley, 681 P.2d 546 (Colo. App. 1984).

Broad language of license agreement that would perpetually limit licensee swimming instructors' ability to train other instructors in the widely-known skill of teaching swimming to infants and young children worldwide is an unenforceable covenant not to compete. Harvey Barnett, Inc. v. Shidler, 143 F. Supp. 2d 1247 (D. Colo. 2001).

Noncompetition agreement that is worldwide and perpetual is unduly broad, both as to time and geographic scope, and is thus void. Nutting v. RAM SW, Inc., 106 F. Supp. 2d 1121 (D. Colo. 2000).

Noncompetition covenant in contract between dentist and professional corporation was void as against public policy, where the contract provided for the dentist's use of the corporation's facilities but stated that the dentist was not an agent or employee of the corporation for any purpose. Smith v. Sellers, 747 P.2d 15 (Colo. App. 1987).

Noncompetition covenant not validated by trade secret provision. A trade secret provision in an employment agreement does not validate an unrelated restrictive covenant whose sole purpose is to prohibit all competition. Colo. Accounting Machs., Inc. v. Mergenthaler, 44 Colo. App. 155, 609 P.2d 1125 (1980); Dresser Indus., Inc. v. Sandvick, 732 F.2d 783 (10th Cir. 1984).

Employer must establish that a restrictive covenant not to compete is not void under this section before a preliminary injunction will be granted. Porter Indus., Inc. v. Higgins, 680 P.2d 1339 (Colo. App. 1984).

The general assembly never intended "void" in subsection (2) to have a strict technical meaning (either "void ab initio" or "voidable"). Rather, it is intended as an emphatic synonym for "unenforceable"; and a noncompete covenant's enforceability must be judged under the circumstances present at the employee's separation, regardless of whether the noncompete covenant would have been enforceable at some earlier time. DigitalGlobe, Inc. v. Paladino, 269 F. Supp. 3d 1112 (D. Colo. 2017).

Nothing in the statute itself limits its applicability only to covenants not to compete designed to protect buyers, therefore, given appropriate circumstances, a covenant running in favor of a franchiser is an enforceable covenant under the statute. Keller Corp. v. Kelley, 187 P.3d 1133 (Colo. App. 2008).

Injunctive relief is the most common and generally preferred relief for breach of a covenant not to compete; however, the conditional language of a bill of sale and covenant not to compete referenced in the promissory note is the equivalent of a liquidated damage provision, which amounts to a penalty and is therefore not enforceable. DBA Enter., Inc. v. Findlay, 923 P.2d 298 (Colo. App. 1996).

Covenant not to compete extinguished when business ceases to exist. If a covenant not to compete which was binding on the seller of the business were enforced by the buyer after the business had ceased to exist, the covenant would constitute a void and unenforceable restraint of trade. Gibson v. Eberle, 762 P.2d 777 (Colo. App. 1988).

The reasonableness of covenants ancillary to the sale of a business depends on whether the restraint on competition provides fair protection to the buyer's purchase of good will, while imposing restrictions no greater than necessary to protect the value of that good will. Reed Mill & Lumber Co. v. Jensen, 165 P.3d 733 (Colo. App. 2006).

A covenant not to compete ancillary to the sale of a business is unreasonable if its restrictions are greater than necessary to protect legitimate business interests. Reed Mill & Lumber Co. v. Jensen, 165 P.3d 733 (Colo. App. 2006).

Evidence established "sale of business" under subsection (2)(a). Boulder Med. Ctr. v. Moore, 651 P.2d 464 (Colo. App. 1982); King v. PA Consulting Group, Inc., 485 F.3d 577 (10th Cir. 2007).

Under "sale of business" exception, where plain language of covenant prohibited "working" for competitors, case was reversed and remanded to determine whether activities beyond merely loaning money or leasing property to a competitor materially breached the covenant. Nat'l Propane Corp. v. Miller, 18 P.3d 782 (Colo. App. 2000).

"Sale of business" and "management personnel" exceptions applied to covenant required as part of property disposition in dissolution of marriage. In re Fischer, 834 P.2d 270 (Colo. App. 1992).

Test for determining whether a covenant fits within the "trade secrets" exception: (1) Is the restrictive covenant justified at all in light of the facts; and (2) are the specific terms reasonable? Mgmt. Recruiters of Boulder v. Miller, 762 P.2d 763 (Colo. App. 1988).

For a covenant not to compete to fit within the trade secret exception of subsection (2), the purpose of the covenant must be the protection of trade secrets, and the covenant must be reasonably limited in scope to the protection of those trade secrets. Gold Messenger, Inc. v. McGuay, 937 P.2d 907 (Colo. App. 1997).

Whether a particular group of employees qualifies under the exception of subsection (2)(d) is an issue of fact. Occusafe, Inc. v. EG&G Rocky Flats, Inc., 54 F.3d 618 (10th Cir. 1995).

The resolution of the issue requires an examination of what the job actually entails, and not just mere job titles. Doubleclick Inc. v. Paikin, 402 F. Supp. 2d 1251 (D. Colo. 2005); Wells Fargo Ins. Servs. USA v. McQuate, 276 F. Supp. 3d 1089 (D. Colo. 2016).

Whether the exception in subsection (2)(d) applies is to be determined as of the time of the employee's departure. Wells Fargo Ins. Servs. USA v. McQuate, 276 F. Supp. 3d 1089 (D. Colo. 2016).

Whether a nonsolicitation clause in a contract fits within the trade secrets exception in subsection (2) is an issue of fact. Saturn Sys., Inc. v. Militare, 252 P.3d 516 (Colo. App. 2011).

A person who conducts or supervises a business is "management personnel". A person who supervises 50 employees in a division with a ten million dollar budget is "management personnel" and therefore falls under the management personnel exception, which is broader than covering merely a few key personnel. DISH Network Corp. v. Altomari, 224 P.3d 362 (Colo. App. 2009).

Management exception to the statutory limit on noncompetition clauses does not apply when an employee does not manage any other employees and there are three levels of management employees above the employee. Atmel Corp. v. Vitesse Semiconductor Corp., 30 P.3d 789 (Colo. App. 2001).

The "professional staff to executive and management personnel" exception is limited to those persons who, while qualifying as "professionals" and reporting to managers and executives, primarily serve as key members of the manager's or executive's staff in the implementation of management and executive functions. Phoenix Capital, Inc. v. Dowell, 176 P.3d 835 (Colo. App. 2007).

Invalidity of noncompetition agreement also renders invalid an agreement not to solicit customers of former employer. Agreement not to solicit customers is form of agreement not to compete that has effect of restricting former employee from working in same business for another employer. Phoenix Capital, Inc. v. Dowell, 176 P.3d 835 (Colo. App. 2007).

Colorado has not recognized an employer's right to protect good will created by an employee's relationships with the employer's customers. Reed Mill & Lumber Co. v. Jensen, 165 P.3d 733 (Colo. App. 2006).

Whether industrial hygienists constitute "professional staff to executive and management personnel" is an issue of fact. Occusafe, Inc. v. EG&G Rocky Flats Inc., 54 F.3d 618 (10th Cir. 1995).

Section applies to independent contractors as well as employees. Colo. Supply Co., Inc. v. Stewart, 797 P.2d 1303 (Colo. App. 1990).

Noncompetition provision specifying the amount of damages and setting a fee percentage as liquidated damages in a physician's employment contract violated subsection (3). The contract requirement that the plaintiff pay defendant a percentage of his fees for two years provided for damages that were not "reasonably related to the injury suffered" by the defendant by reason of the termination of the contract with plaintiff. Also, the fee percentage set as liquidated damages in the noncompetition provision was disproportionate to any possible loss incurred by the defendant. Wojtowicz v. Greeley Anesthesia Servs., 961 P.2d 520 (Colo. App. 1997).

Any damages awarded pursuant to a noncompete agreement and subsection (3) must be reasonably related to the injury actually suffered by the defendant and not simply related to an injury prospectively estimated at the time of contract formation. Crocker v. Greater Colo. Anesthesia, P.C., 2018 COA 33, 463 P.3d 860.

Applied in Harrison v. Albright, 40 Colo. App. 227, 577 P.2d 302 (1977); PostNet Int'l Franchise Corp. v. Wu, 521 F. Supp. 3d 1087 (D. Colo. 2021).