On June 8, 2022, Colorado Governor Jared Polis signed Colorado Bill 22-1317 (the “Bill”), which was passed by the Colorado Legislature on May 10, 2022. Effective 90 days from the end of the legislative session – August 10, 2022 – Colorado will join of Illinois, Washington and other states which prohibited non-competition for employees who earn below a certain salary threshold. Colorado, which has a notable recent history of hostility to non-competition — including the threat of criminal penalties — is also now poised to impose significant financial penalties on employers for violating the bill.
The bill strikes down ‘any non-competition clause that restricts the right of any person to receive remuneration for the performance of work for an employer’, unless the individual is a ‘highly paid worker’ .– a threshold that starts at $101,250 in 2022 and will be adjusted annually by the Colorado Department of Labor. Colorado’s new limit is consistent with the “low wage” non-competition threshold set by Washington State and Oregon.
The bill’s prohibitions will also apply to unsolicited customers, but will exclude employees whose income is at or above 60% of the high-earning threshold, or about $60,750 in 2022.
Confidentiality provisions relating to the activities of the employer are still permitted under the bill, as long as they do not prohibit the disclosure of information relating to “general education, knowledge, skills or experience of the worker, whether acquired at work or otherwise”. Additionally, restrictive covenants for the purchase and sale of a business are also always permitted.
Notably, the bill states that an employer can now be “liable for actual damages and a fine of five thousand dollars per worker or potential worker injured by the conduct. The Attorney General and any worker or future worker aggrieved by an employer’s conduct may sue for injunctive relief and the recovery of penalties. Importantly, the bill does not define what constitutes “injury” in this context, or how an employee will prove “actual damages,” which will likely lead to significant questions and disputes between employers and the employer’s attorney. ’employee.
All restrictive covenants must be provided to a prospective employee before they accept their offer of employment, and to a current employee at least 14 days before the effective date of the covenant. All restrictive covenant notices must: (1) be accompanied by a non-compete copy; (2) identify the agreement by name and state that the agreement contains a non-competition clause; and (3) direct the worker to specific sections or paragraphs of the agreement that contain the non-competition clause.
Finally, as we have seen in other States, the bill proclaims that an employee who resides primarily in Colorado cannot be required to adjudicate the validity of their non-competition outside of Colorado. However, in light of the Supreme Court decision Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas571 US 49 (2013) decision, the applicability of this provision is questionable.
Fortunately for employers, the bill only applies to commitments entered into or renewed on or after the date the bill comes into force.
© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 161