February 17, 2022 - Restrictive covenants were once the exclusive province of the common law in each state. That is no longer the case. So far, the applicable law remains state law (although there are proposals pending in Congress and at the Federal Trade Commission that portend regulation there). But, states now are supplementing or altering their common law with statutes.
Today, 30 states (including Washington, D.C.) have laws affecting restrictive covenants. Unlike state statutes regulating trade secrets (which largely follow the Uniform Trade Secrets Act), the state statutes governing restrictive covenants run a wide gamut. A quick look at those that became effective in late 2021 or are becoming effective in 2022 will illustrate patterns in that regulation.
These changes reflect an increasing hostility towards restrictive covenants. As a result, 2022 is far different than 2002 or even 2012.
Employers need to reevaluate their restrictive covenant agreements in light of these changes and to appreciate that a "one size fits all" approach is unsustainable. Today, knowing the common law is far too little.
Colorado's new statute is novel in imposing criminal penalties (120 days in jail, a fine up to $750, or both) for employers violating its restrictive covenant statute.
On its face, compliance looks easy since there are four separate exceptions:
•Any contract for the purchase and sale of a business or the assets of a business;
•Any contract for the protection of trade...
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