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Colorado Enacts Potential Criminal Penalties for Restrictive Non-Compete Agreements

In July 2021, Colorado passed SB21-271, which was enacted to reform the sentencing provisions related to misdemeanors and petty offenses. At first glance, the legislation seems to be only aimed at the criminal justice system. However, one provision within the bill, specifically, C.R.S. § 8-2-113, was amended to now have employers face criminal liability regarding the use of restrictive covenants within non-compete agreements.

C.R.S. § 8-2-113 currently forbids the use of non-compete agreements that apply restrictive covenants on any person to receive compensation for performance of skilled or unskilled labor for an employer. However, such constraints do not apply to:

  1. Any contract for the purchase and sale of a business or the assets of a business;
  2. Any contract for the protection of trade secrets;
  3. Any contractual provision providing for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years; or
  4. Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel.

However, once the amendment implemented by SB21-271 become effective as of March 1, 2022, employers who knowingly implement a restrictive covenant with an agreement will now be in violation. Such an infringement may be punishable with up to 120 days imprisonment and/or a $750 fine for each infraction.

Next Steps for Employers

Employers who utilize non-compete agreements will want to review their document to ensure that any restrictive covenants comply with the permitted exceptions within the legislation. As such, employers are encouraged to seek the assistance of legal counsel regarding the development of non-compete agreements and any questions or concerns they may have regarding their current and/or future implementation of non-compete agreements.

HR Works, Inc., headquartered at 200 WillowBrook Office Park in Fairport (Rochester), New York, with an office in East Syracuse, is a human resource management outsourcing and consulting firm serving clients throughout the United States. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.