Colorado non-compete law forbids non-compete agreements except for certain specified purposes:
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Non-compete agreements, also known as covenants not to compete, are contracts that prohibit employees from sharing employer trade secrets, setting up competing business, or working for competitors during the term of employment and for some time afterward.
Some non-compete agreements in Colorado are stand-alone agreements, while others are merely clauses in an employment contract. Some agreements are more specific than others. A non-compete agreement might, for example, prohibit the employee from working anywhere in the Denver semiconductor industry for six months after leaving their current employer. Non-competes are relatively unimportant in some industries, while they are critical in others (the tech industry, for example).
Although courts are suspicious of non-competes, they protect legitimate company property and its business goodwill. Some activities that non-comperes forbid are already against the law, such as divulging trade secrets, for example. What a non-compete does is to add 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 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 competing 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 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 this critical personnel to work for competitors.
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 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.
Sequoia Legal is a business law firm in Denver, Colorado. We 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.
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.
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.
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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.
At Sequoia Legal, our mission is to bring Big Law experience to small and medium-sized businesses.
Call us today at (303) 476-2851 or contact us to learn how we can provide legal counsel and help you draft an enforceable non-compete agreement in Colorado.
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