Colorado Amends Non-Compete Law Regarding Training Repayment Agreement Provisions (TRAPS)

June 3, 2024

By: Colin A. Walker

On May 31, 2024, Colorado Governor Jared Polis signed House Bill 24-1324, “Attorney General Restrictive Employment Agreements.” The bill strengthens the protections for employees who sign agreements requiring them to repay the employer for training expenses, increasing the penalties for such agreements which violate the law and giving the Attorney General broad regulatory and enforcement authority.

For many years, non-compete agreements, non-solicitation agreements, and other restrictive covenants have come under scrutiny in many states and, more recently, within the federal government. See April 24, 2024 blog post here. Many have expressed concerns that such agreements prevent, or interfere with, a person’s ability to earn a living in their chosen work or profession. On the other hand, some recognize employers’ legitimate interests in protecting trade secrets and other intellectual property from misuse by employees in subsequent employment with a competitor, which could give the competitor and unfair advantage. Because of this, most states have enacted laws, which restrict the enforceability of restrictive covenants, but most do not prohibit them completely.  

One form of restrictive covenant is an agreement which requires an employee to repay the employer for the costs of training if the employee resigns or is terminated (sometimes for “good cause”) within a certain period of time after receiving the training. These agreements are often known by the acronym “TRAPS” (Training Repayment Agreement Provisions). The theory is that, if an employer invests significant time and resources training an employee, and the employee separates before the employer realizes a return on the investment it made in the training, it is only fair that the employee is required to pay back the costs of the training. However, some such agreements have been used abusively, by including provisions requiring repayment in excess of the actual amount of the training, onerous repayment terms, or training that has little or exaggerated value. Agreements of this sort do not support the purpose of allowing employers a reasonable return on training; rather such agreements are anti-competitive. 

This year, the Colorado Legislature passed House Bill 24-1324, to address these issues. Pre-existing Colorado law provided that TRAPS were lawful within certain parameters, including that the training is distinct from normal on-the-job training, the costs are reasonable, and the recovery by the employer decreases over the term of employment. This bill expands and strengthens these provisions in significant ways:

•    TRAPS are deemed to be a “consumer credit sale” under Colorado Consumer Credit Code (much like student loans), which imposes specific requirements and carries robust enforcement mechanisms;  
•    The Attorney General has enforcement authority;
•    The Attorney General may promulgate rules to implement and enforce the bill;
•    The Attorney General or an aggrieved worker may recover three times the amount of the attempted recovery by the employer (in addition to the $5,000 penalty provided by existing law), plus attorneys’ fees, costs, and interest.

The original draft of the bill would have included penalties of five times the training expenses and provisions making a violation of the law an unfair trade Practice under the Colorado Consumer Protection Act. Business and employer organizations were able to convince the bill’s sponsors that such provisions were excessive and unnecessary. 

This new law significantly increases the risk for employers who use TRAPS. Employers who wish to require their employees to repay training expenses in the future should review this law carefully and consult knowledgeable employment counsel.