Employment contracts often contain provisions which limit the ability of employees to work for a company’s competitors. From an employer’s perspective, a non-compete provision can be vital to protecting against key members of its staff taking valuable information to others within a competitive industry. For employees, it is vital that such provisions are carefully considered in light of the potential restrictions it will place on future opportunities. While many states, including California, have found that such provisions violate public policy as they prevent individuals from making a living, other states, including Colorado, enforce such provisions in certain circumstances. In either case, there are very specific legal considerations that must be taken into account when drafting or reviewing non-compete and/or non-solicitation provisions.
In Colorado, the restrictive provision must be reasonable in scope, including time and geography. This means that the limitation cannot be in perpetuity or some other unreasonable duration. The provision must also be specific and reasonable as to the area of the country (or world) where an employee is barred from working. Most important, there must be a reasonable basis for the restriction. For example, a founder of a major biomedical company could reasonably be restricted from working for a competing biomedical firm. However, that same employee cannot be barred from working, in general. Employment with a non-competing company in a different area of the industry is likely going to be allowable under the laws governing these restrictions. Again, a Court is going to look at the particular facts of the case and determine whether the restrictions are reasonable in light of the circumstances.
Additionally, only certain types of employees are bound by non-compete provisions under Colorado law. In general, managers, directors, and other “key persons” at the heart of a company, including their assistants, may be subject to a valid non-compete. Additionally, those with access to trade secrets may be validly subjected to the restrictions. In California, an shareholder, owner, or member of an entity may be subject to a valid non-compete if they are selling off their interest in the entity. As it relates to trade secrets, California employers typically seek to enforce non-disclosure and non-solicitation provisions where a non-compete would be void.
The validity of non-compete provisions are very fact-specific. Although the principles outlined above offer some guidance, the validity of these contracts will depend on the responsibilities of the employee, the type of industry, the scope of the restriction, the company the ex-employee goes to work for, where the employee is located, whether the contract contained an enforceable venue or choice of law provision, and many other nuances of the employment.
Skilling O’Leary works with both employees and employers in navigating the legal requirements of a valid non-compete agreement and non-disclosure/non-solicitation agreements. Whether you need assistance in drafting such an agreement, or whether you are an employee looking to review an employment contract, we can help.
The materials on this Web Site are intended to be for informational purposes only and are not intended to be treated as legal advice. Each legal problem depends on its particular facts, and different jurisdictions have different laws and regulations. Because of these differences, you should not act or rely on any information from this Web Site without seeking the advice of a competent attorney licensed to practice law in your jurisdiction.