Enforceability of Noncompete Agreements in a Global Marketplace

In general, Colorado law disfavors noncompete agreements. The general rule is that the average working person with no managerial responsibilities cannot be prohibited from practicing their trade at a competitor’s place of business.

The real question is, does Colorado law apply? In an attempt to entice corporate home offices, many states have laws specifically recognizing the validity of noncompete agreements. For example, a medical supply company based in Minnesota may have a sales representative living in Colorado whose sales territory is everything west of Denver, Colorado. If the sales representative signed a noncompete agreement specifying that Minnesota law applies and all disputes must be litigated in Minnesota courts, is that noncompete agreement enforceable against a Colorado resident?

If you are looking for a clear answer, I do not have one. The very first issue is whether the Colorado courts will enforce the clause stating that all litigation must occur in Minnesota. This is called a forum selection clause. On one hand, people are free to contract and negotiate the terms of their agreements. On the other hand, Colorado has an interest in protecting its residents and applying Colorado law to noncompete agreements.

The next issue is whose law applies – Colorado law or Minnesota law. This can be quite confusing because, even if the forum selection clause is valid, Minnesota may still apply Colorado law to the noncompete agreement under their local law. We lawyers fondly refer to this as choice of law, law. Just to make this even more interesting (i.e., confusing), the employer might insert a clause in the noncompete agreement stating that regardless of Minnesota or Colorado’s choice of law, laws, the employment law of Minnesota will apply.

There is no clear answer under Colorado law, and frankly, the laws of many states. The courts will probably look to the facts of the particular situation in coming to a decision. For example, an employee whose territory was primarily Colorado working out of an actual office here in Colorado with other employees living here in Colorado would have a better chance of invalidating a noncompete agreement than an employee who is living in Colorado, no corporate office here in Colorado and serving customers in another state.

Those jurisdictions recognizing noncompete agreements typically limit the scope of the agreement in some way. A noncompete agreement that applies for 12 months is much more likely to be enforced than one lasting 10 years. A noncompete agreement that prohibits competition in a concise geographic area is more likely to be enforced than one prohibiting competition around the world. A noncompete agreement allowing a competitor to employ the individual in another area of the business is more likely to be enforced than one that prohibits employment by any company that competes with the previous employer.

Unfortunately, most employees sign the noncompete agreement without giving it a second thought. The time to review, research and negotiate a noncompete agreement is before accepting the job.