Are Colorado Noncompete Agreements Enforceable?

Jobs are hard to come by these days. Colorado employers routinely request their employees to execute Colorado noncompete agreements that double as nondisclosure agreements. The general rule is that Colorado noncompete agreements are not enforceable except for certain limited but important exceptions. Colorado non-compete agreements may be enforceable when it involves a contract for the purchase and sale of a business, a contract for the purchase and sale of business assets, or covenants by management personnel and employees who constitute professional staff to management personnel.

Whether Colorado noncompete agreements are enforceable is not an easy question to answer. Most disputes arise over the management personnel exception because employers try to morph every employee into a manager for purposes of Colorado noncompete agreements. The outcome will depend on the facts and circumstances of the situation. However, employees who do not pay attention to the wording of Colorado noncompete agreements may find themselves greatly disadvantaged when their former employer threatens or files a lawsuit. Below are two clauses to watch for and perhaps negotiate out of Colorado noncompete agreements regardless of whether the Colorado noncompete agreement is enforceable.

Colorado noncompete agreements we review almost always contain a very one-sided attorneys’ fee clause. The attorneys’ fees clause states that the employer (and not the employee) shall be entitled to its attorneys’ fees for any act that could be remotely considered an act to enforce the employer’s rights under the Colorado noncompete agreements. Enforcing ones rights can have broader meaning than being the one who prevails or “wins”. With a clause like this, the employer has very little downside when filing legal action. Legal fees in litigation can be substantial if not crushing. At a minimum, we usually try to negotiate a prevailing party legal fees clause so that if the employer is not successful, the employee can recover legal fees. This single change tends to bring reason and reflection to the forefront before rash actions are taken by either the employer or the employee.

The phrase ex parte in Colorado noncompete agreements is usually not a good thing for the employee. Ex parte means without notice to the other party. Most Colorado noncompete agreements contain a clause allowing the employer to quickly get into court and get an order prohibiting the former employee from competing. This is called a temporary injunction. In some Colorado noncompete agreements, that clause will give the employer the right to get that temporary injunction without the former employee even getting notice of the request and an opportunity to argue why the request should not be granted. Once that injunction prohibiting the former employee from “competing” is in place, the employee is at a disadvantage because his source of income has been eliminated. For that reason, eliminating any ex parte language from Colorado noncompete agreements is very important to the employee.
There are many clauses in Colorado noncompete agreements that can and should be negotiated by the employee. In a tight job market, the employee may find himself or herself at a disadvantage. However, the above clauses are very one-sided. The employer will usually concede the issue if brought to the employer’s attention.