In keeping with the national trend of aggressively pursuing limitations on or prohibitions against non-competition agreements, the State of Colorado recently enacted first-of-its-kind criminal penalties for employers seeking to enforce illegal non-competes. If you are an employer that utilizes non-competition agreements, this development is one to watch as it may be the start of a new wave of limitations on restrictive covenants.

In general, Colorado law prohibits non-competition agreements restricting a person’s right to receive compensation, unless such agreement falls into one of four narrow categories:

1. a contract for the purchase and sale of a business;

2. a contract for the protection of trade secrets;

3. a contract for the recovery of the expense to educate and train an employee who has served an employer for less than two years; or

4. the employee qualifies as an executive, officer, management personnel, or their professional staff.

Colorado law also prohibits the use of force, threats, or other means of intimidation to prevent a person from engaging in any lawful occupation. This prohibition has not received much attention in Colorado courts to date, but could be interpreted to include enforcement of a non-competition agreement that an employer knows to be overbroad or unenforceable.

The recent change to the law in Colorado was subtle, but powerful. Amidst hundreds of pages of revisions to Colorado’s sentencing laws, the legislature added a single clause,...

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