January 25, 2010 by Brad Hamilton
In 2009 the Colorado Court of Appeals decided two important cases on the scope and enforceability of non-compete agreements in Colorado.
Colorado is one of several states that have laws severely restricting the application of non-compete agreements. Colorado law 8-2-113 says that non-compete restrictions are void, except (1) as part of the purchase of a business, (2) for the protection of trade secrets, (3) if the business paid for its employee's education, and (4) for executives, officers, professional staff and "management personnel". I'll discuss this more below, but the two cases need to be considered in the context of this Colorado law.
In Lucht's Concrete Pumping, Inc. v. Horner the Colorado court of appeals held that if a business and an employee enter into a non-compete agreement after the employee has already begun work, the business must provide additional consideration to the employee for the non-compete agreement to be enforceable - continued employment is not sufficient consideration.
Lucht's Concrete is important because it invalidates a fairly common practice - businesses often request or require employees to enter into non-compete agreements at some point during the life of the company, and in the past many of those businesses, and their lawyers, assumed that allowing the employee to keep his job was sufficient consideration to enforce the non-compete agreement.
Colorado companies that have employees who signed non-compete agreements after they began employment, and without paying any new consideration, need to enter into new non-compete agreements with those key employees the next time the employee receives a raise, bonus, promotion or other increase in compensation or benefits. You should work with your lawyer or HR professional to implement the appropriate program.
The court decision in DISH Network Corporation v. Altomari is a bit more helpful to businesses. In DISH the court clarified that the "management personnel" under the statute who may be bound by a non-compete agreement includes non-executive managers who are mid-level managers, so long as those persons supervise other employees, have decision making authority and a "certain level of autonomy".
In light of DISH Colorado businesses may now be able to extend their non-compete agreements to lower level management employees than previously thought. Colorado businesses who believe non-compete agreements are important to their business should re-visit the level and class of employees who enter non-compete agreements - the requirement may extend further down the org-chart than before.
To read this entire article, please visit The Law of Business.
