Colorado non-compete law forbids non-compete agreements except for certain specified purposes:
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Although courts are suspicious of non-competes, they protect legitimate company property and its business goodwill. Some activities that non-competes forbid are already against the law, such as divulging trade secrets, for example. A non-compete adds an additional penalty, breach of contract, to existing legal penalties. Other activities, such as working for a competitor, are not otherwise illegal.
Non-competes protect employees as well, although these protections are typically inserted into the contract language by substantive law. State and federal law prevent a non-compete from indefinitely or unreasonably restricting an employee’s right to work for a competitor or work in a certain industry, for example.
The purchaser of a business buys not only its physical assets, such as its factories but also its intangible assets, such as its intellectual property and its trade secrets. The buyer does not want the seller to compete with it by using the business’s proprietary knowledge that the buyer has already purchased.
As such, a non-compete agreement, either stand-alone or as part of a merger and acquisition or a purchase and sale agreement, is almost always a necessary part of a business purchase agreement. Just as with an employer-employee non-compete agreement, any non-compete restrictions must be reasonable in time and geographic scope.
Colorado non-compete law forbids non-compete agreements except for certain specified purposes:
Colorado's non-compete law allows you to use non-competes to protect trade secrets. The main reason for this is that trade secrets, while valuable, enjoy almost no formal legal protections. Think of the formula for Coca-Cola, for example. Colorado law sets certain standards that proprietary knowledge must meet to be considered trade secrets.
A non-compete agreement incident to the sale of a business should place specific but reasonable restrictions on the seller’s freedom of action after the completion of the sale of the business. The seller should not be able to use his or her intimate knowledge of the business to undermine the buyer. Nevertheless, the seller should not be burdened with unreasonable restrictions.
Management, executives, and professionals are vital to the success of a company. Due to their knowledge of company confidential information, they can bring the company down if they share their knowledge with a competitor. Employers are allowed to negotiate reasonable restrictions on the ability of these critical personnel to work for competitors. Many sales and director-level or higher positions require a non-compete clause in the employment contract.
A non-compete agreement must be reasonable in duration and geographic scope, and it must be reasonable on the whole. In addition, employers or business owners need to consider other issues for non-compete agreements enforceable in Colorado, such as:
It is also important to keep up with changes in non-compete agreements under Colorado law. What may be acceptable today might not be acceptable tomorrow. Restrictive covenant agreement lawyers routinely keep up with these changes, in addition to other common non-compete agreement exemptions for each client’s respective industry.
There have recently been new changes to Colorado law regarding non-compete agreements. The law now requires that all agreements contain language indicating that their purpose is to protect trade secrets, that agreements are no broader than necessary to protect a business's trade secrets, and that they are only used for employees earning above $101,250 in salary as of 2022.
Sequoia Legal is a business law firm in Denver, Colorado. Our Colorado non-competition attorneys help our clients to negotiate, draft, review and implement Colorado non-compete agreements. These agreements must be reasonable in scope and duration, detailed, agreeable to both sides, and, above all, enforceable. We also provide noncompete litigation services in the event a non-compete is breached.
Significant legal restrictions govern non-compete agreements in Colorado. Because of these, drafting them has become an art. The drafter of a non-compete agreement must take into account two competing considerations:
We advise our clients on how to implement a companywide confidentiality policy. This includes adding ancillary non-compete agreements to otherwise enforceable agreements and setting the duration and scope of activity. We also advise which employees may be exempt from a non-compete and which positions necessitate a non-competition agreement. If your company plans to add a non-compete clause to an existing contract, we advise you on the best way to approach the conversation.
Courts tend to be suspicious of restrictive covenant agreements because excessively restrictive agreements violate freedom of contract, perhaps the most important economic right under the US Constitution. Restrictive covenants might be found in non-compete agreements, confidentiality agreements, and nondisclosure agreements.
An executive or manager may be faced with whether to sign a restrictive covenant, refuse to sign it, or demand modifications. Ultimately, they need to fully understand the implications of the agreement under various possible scenarios. That is what we are here for, and that is why we frequently review these kinds of documents.
A well-considered confidentiality policy can generate many important rights for your company. Rights are useless, however, unless you can enforce them. We know how to enforce your rights, and we will not hesitate to do so. When it comes to confidentiality matters, the most important remedy is usually an injunction issued in time that can impose serious penalties on anyone who violates it.
Short of litigation, however, we also offer other services such as negotiation of the terms of non-compete agreements, renegotiation of these terms in case of changed circumstances, and other strategies that can keep a dispute out of court.
Sequoia Legal is a team of six Denver business attorneys who enjoy rich experience in a multitude of Denver small business legal issues, including contract law (especially non-compete agreements), international commercial transactions, regulatory compliance, and more. We actively monitor the Colorado legislature for changes that affect our clients, providing you with timely legal advice to protect your business interests.
Working with Sequoia Legal provides numerous benefits:
We value our client relationships. As your business grows, we walk beside you, sharing your triumphs and preparing you for the future.
Our business attorneys are aware of the complexities and pitfalls that a lack of a Colorado non-compete agreement can have on your business. We protect business owners' proprietary information and trade secrets.Meet Your Attorneys
Our team at Sequoia Legal regularly helps sellers and buyers of businesses navigate the intricacies of the purchase and sale process to help them achieve their dreams. In this case, Sequoia Legal was brought on by the owners of a local technology company in a sale to a strategic acquirer with a total transaction value in the multiple millions. We successfully negotiated transaction agreements, including due diligence with the buyer and post-closing employment agreements, and closed the transaction within an expedited 30 days period. As part of this process, we helped educate the sellers through their first transaction and work through the emotional roller coaster of selling your business.
Our Denver export compliance law firm has extensive experience with export administration regulations, the FCPA and international trade and can assist clients with developing export control and FCPA compliance programs. We ensure each client follows appropriate FCPA, export control compliance and foreign trade regulations for their industry, and our clients hail from nearly every industry sector. The attorneys at Sequoia Legal have successfully assisted and provided continued guidance for several international companies regarding the internal implementation of FCPA and export compliance plans. These companies employ and engage in various transactions with individuals and companies around the world. To ensure continued compliance with US sanctions laws and regulations following the implementation of the FCPA and export compliance programs, Sequoia Legal has conducted company audits, interviews and internal FCPA training programs. Due to the diligence of the Sequoia Legal team, zero issues or enforcement actions have been taken by the US government against Sequoia's clients for any FCPA or export related matter. An investment in a Sequoia Legal compliance plan has saved our clients time, focus and money.
Companies routinely face complex situations when exporting or doing business internationally. There is a complex set of laws and regulations applicable to the persons, places and products involved in international business. Businesses sometimes end up violating or running afoul of these highly technical and complicated rules. Sequoia Legal has represented various US and foreign companies in conducting internal investigations relating to suspected violations of US sanctions and export controls. Following completion of these internal investigations, where necessary, we have assisted clients in voluntarily disclosing suspected violations to US authorities and have obtained favorable outcomes, including reduced penalties or no penalties. This has allowed our clients to sleep at night and continue to expand and do business internationally in compliance with applicable US law.
And Finding It! Sequoia Legal regularly helps search funds and individuals find, acquire and successfully build new businesses. Our client was a search funder focused on acquiring a company in the professional services industry. We assisted in negotiating several LOI's that fell through, but as a result of that process, we found the right acquisition fit and assisted our client in executing an LOI, conducting due diligence, structuring the deal, negotiating the purchase agreement, working with the SBA and completing a deal that included a cash payment, SBA loan and seller financing with a variable note that reduced if certain revenue metrics were not achieved. We then assisted our client with several "tuck-in" acquisitions to further augment and accelerate the client's goals and exponentially grow revenue.
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Our clients often ask us, "Are non-compete agreements enforceable in Colorado?". As long as they comply with Colorado non-compete laws, the answer is usually yes. We’ve provided answers to other common questions below and will gladly discuss those unique to your business in a personal consultation.
If an employee breaches a non-compete agreement, the employer can seek an injunction to prevent the employee from continuing the breach. Violation of an injunction is considered contempt of court. An employer might also sue the former employee or even their new employer for damages. Another means of enforcement is to seek civil or even criminal sanctions under state and federal trade secret law.
An enforceable non-compete agreement is not supposed to be any more restrictive than necessary to protect the employer’s legitimate confidentiality interests. The longer the duration and the wider the geographic scope of a non-compete agreement, the more likely it is that a court will declare the agreement unenforceable. A non-compete attorney should draft this document.
A non-compete agreement cannot be open-ended; it must be limited in duration. In Colorado, there is no set maximum duration - it all depends on what is necessary to protect the employer’s legitimate interests. A duration of six months, however, is considered acceptable in most cases.
A non-compete agreement prevents the employee from working for the employer’s competitors. A non-solicitation agreement is less restrictive; it prevents a former employee from soliciting any of the current employer’s clients. This restriction is designed to protect the employer against the situation where an employee quits and then attempts to “steal” their former employer’s clients.