Colorado Becomes First State to Criminalize Void Non-Competition Agreements – Intellectual Property

United States: Colorado becomes first state to criminalize void non-compete agreements

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Denver, Colorado (January 13, 2022) – Colorado recently became the first state to criminalize the use of void non-compete agreements. The law takes effect March 1, 2022 and makes it a Class A misdemeanor for employers to implement void covenants.

In Colorado, non-competition covenants are void unless they relate to contracts for: (1) the purchase and sale of a business or business assets; (2) for the protection of trade secrets; (3) for the recovery of an employee’s education and training costs under certain conditions; and (4) for leadership and management personnel.

So, for example, an employer who asks an employee who does not have access to trade secrets to sign a non-compete agreement may be subject to criminal prosecution under the new law.

Employers should note that Colorado’s restrictive covenant law remains unchanged, as do the provisions on the enforceability of restrictive covenants. Therefore, if companies comply with the law, which has been around for some time, there should be no violation. As of March 1, what changes is a potential criminal penalty for violating the restrictive covenants law.

Many questions remain about the application of this criminal law and whether it can apply to employers who threaten employees with dismissal if they do not sign a void non-compete agreement. Centennial State employers should review their non-compete agreements and internal policies regarding employees who are required to sign such agreements to ensure they are not unknowingly violating this new law.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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