When Does Colorado's New Law on Covenants Not to Compete Require Written Notice?
April 25, 2023
By: Colin A. Walker
In August of 2022, the Colorado Legislature amended Colorado’s law governing covenants not to compete, making them significantly more difficult to enforce. Covenants not to compete prohibit employees from competing against a former employer and/or soliciting its customers (in Colorado, restrictions on soliciting other employees are not governed by the same standards).
Among other things, the new law requires written notice to a prospective or current worker prior to the effective date of the covenant not to compete. For example, if an employer hires an employee for a position the duties of which include having access to the employer’s trade secrets, and asks that employee to sign a covenant not to compete to protect the trade secrets, notice would clearly be required. However, the question has arisen whether written notice is required with other kinds of agreements.
The previous law did not apply to confidentiality agreements or agreements for the recoupment of training expenses, and imposed more lenient standards for covenants not to compete related to the purchase of a business. Confidentiality agreements and agreements for recoupment of training expenses do not prohibit competition. There are sound reasons for a covenant not to compete in connection with the purchase of a business which are not present in other contexts—protecting the assets that are being purchased.
The new law also differentiates such agreements. Section 3 of the new law provides that the following are not prohibited:
- a provision providing for an employer’s recovery of the expense of educating and training a worker;
- a reasonable confidentiality provision relevant to the employer’s business;
- a covenant for the purchase and sale of a business or the assets of a business;
- a provision requiring the repayment of a scholarship provided to an individual working in an apprenticeship.
But, is written notice required even for these agreements which are treated differently?
It appears that the new law does require written notice even for these agreements. Section 4 of the new law provides:
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:
- A prospective worker before the worker accepts the employer’s offer of employment; or
- A current worker at least fourteen days before the earlier of:
- The effective date of the covenant; or
- The effective date of any additional compensation or change in the terms or conditions of employment that provides consideration for the covenant.
C.R.S. § 8-2-113(4)(a) (emphasis added). The exceptions for confidentiality agreements, recoupment of training expenses, and the purchase of a business are found in Subsection 3 of the statute. Subsection 3 is specifically mentioned in the notice provision, so notice is required.
The notice must be:
- In a separate document from the agreement;
- In clear and conspicuous terms;
- In the language in which the employee and the employer communicate;
- Signed by the employee.
The statute provides that the notice is sufficient if:
- It is provided with a copy of the agreement;
- Identifies the agreement by name an states that the agreement contains a covenant not to compete that could restrict the employee’s options for subsequent employment following separation; and
- Directs the employee to the specific sections or paragraphs of the agreement that contains the covenant.
And, it would have to be signed by the employee. A cover letter which attaches the proposed agreement is a good way to do this. The notice must also be given within the times periods set forth above.
The notice requirements are not particularly difficult. But, if not done properly, the covenant will not be enforceable. Employers who wish to ensure that their confidentiality agreements, covenants not to compete related to the sale of a business and the other agreements covered by the exceptions in Section 3, will provide the written notice required by the statute.
 These requirements would not apply outside the employment context, for example a confidentiality agreement between two parties considering a merger or acquisition. They do, however, apply to independent contractors.