Colorado Employers Will Likely Have to Look Beyond Non-Competes to Protect Trade Secrets for Employees who are not Highly Compensated
By Kenneth Stable
Although Colorado has not favored non-compete agreements, the law allows enforcement of non-compete agreements in very limited situations including, among others, to protect trade secrets[1] or information given to certain high-level executive employees and their staff. [2] The current law will likely become even more restrictive if Colorado’s Governor Jared Polis signs House Bill 22-1317 into law, which he is expected to do. One of the major changes to Colorado’s non-compete law in that bill is to limit the use of non-compete agreements in Colorado to “highly compensated workers,” those who earn $101,250.00[3] or more annually. H.R. 1317, 73rd Gen. Assemb., 2d Reg. Sess. (Colo. 2022).[4]
In the past, Colorado employers enforced non-compete agreements against mid-manager employees, many of whom did not earn a six-figure salary, after they were provided company confidential and proprietary information, took that information with them to a competing company, and then used the information they took to compete directly with their prior employer. This enforcement of non-compete agreements for employees paid less than a six-figure salary may exist no more in Colorado if the bill is signed into law. It is important to note that non-compete agreements currently in place prior to the anticipated August 10, 2022, enactment of the new law will remain enforceable. However, if new employees are hired and not paid $101,250.00 (in 2022), or the subsequent annual adjustments for highly compensated employees in future years, entering into a non-compete agreement would be against Colorado law and subject the employer to a penalty of $5,000 per worker or prospective worker harmed. Id.[5]
So what should a Colorado employer do to protect trade secrets? Assuming HB22-1317 becomes law, one option for Colorado employers to protect their trade secrets is to use well drafted confidentiality agreements with their employees, prohibiting the disclosure of trade secrets during and after the employment relationship. Employers must, however, ensure that they have protectable trade secrets and have taken steps to ensure their employees know the information they are handling on behalf of and/or being given by their employer are confidential, proprietary, trade secrets that are not publicly known. When employees leave, the employer must ensure that it demands the return of its trade secret information to ensure that the information is being kept confidential. If the employee goes to a competitor and discloses the prior employer’s trade secrets, the prior employer may enforce the confidentiality agreement to prohibit the former employee from disclosing trade secrets and/or violating the Defend Trade Secret Act 18 U.S.C.A. § 1831 and/or the Colorado Uniform Trade Secret Act. § 8-2-113, C.R.S.
Takeaway:
Prior to Colorado’s Governor signing HB22-1317 into law, employers may consider entering into non-compete agreements with their employees in addition to confidentiality agreements to protect trade secrets. Once the bill becomes law, Colorado employers should consider using well drafted confidentiality agreements with all employees who have access to company trade secrets, in addition to well drafted non-compete agreements for highly compensated employees. We also encourage employers to contact employment counsel before trying to enforce non-compete agreements in Colorado. Campbell Litigation will continue to monitor if Governor Polis signs HB22-1317 into law and remains available for consultation with employers on how best to protect their trade secrets.
[1] Mgmt. Recruiters of Boulder, Inc. v. Miller, 762 P.2d 763 (Colo. App. 1988).
[3] Colorado Department of Labor and Employment Order. 7 Colo. Code Regs. § 1103-14-1 ( In 2022, highly compensated employees are those making $101,250 or more annually. This figure is adjusted annually and posted on the first day of the year.)
[4] The law would limit enforcement of customer non-solicitation agreements in Colorado to workers earning 60% of the “highly compensated workers” annual salary amount. Id.
[5] HB22-1317 includes various other provisions about prior notice to employees before entering into a non-compete agreement and limits on enforcement action. Id.