By Landon Glover (Law Clerk) and Trevor Crow
Effective August 10, 2022, Colorado entrepreneurs looking to protect confidential information and trade secrets for a new or existing venture should be aware of the recent change in the law that may restrict their ability to do so. The Restrictive Employment Agreement Act of 2022, passed as H.B. 22-1317, comes after states including Illinois and Oregon passed similar laws to address concerns that noncompete agreements stifle innovation and hurt workers, according to the bill’s sponsor, Rep. Kerry Tipper.
The new law will be a dramatic shift for Colorado entrepreneurs with confidential information, and our team is here to help you grow your business while still protecting your proprietary information and trade secrets.
Here are the top three things Colorado entrepreneurs should know about the new law:
1. It Significantly Limits Noncompete and Customer Nonsolicitation Agreements Based on Salary
After the new law takes effect, noncompete agreements in Colorado will only be enforceable against Colorado-based workers who make at least $101,250 per year in annualized cash compensation, which includes “gross salary or wage amount, fee, or other compensation.” The worker must make this minimum amount both when the noncompete agreement is entered into and when it is enforced against the employee. Furthermore, the law requires noncompete agreements to be “tailored in scope,” meaning only as broad as necessary to protect trade secrets.
Similarly, the law limits customer nonsolicitation agreements to employees making at least $60,750. The same requirement for noncompete agreements applies here: the employee must make the threshold amount at the effective date of the agreement and when it is enforced against the employee.
2. Noncompete Agreements are Limited to “Trade Secrets”
Under the new law, Colorado entrepreneurs are allowed to protect “trade secrets” using noncompete laws. Note, the Colorado Uniform Trade Secrets Act (CUTSA) specifically defines a trade secret as “the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value,” and requires the owner of the trade secret to “[take] measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.” In the past, reasonable efforts to protect trade secrets include advising employees of the existence of a trade secret and limiting the access on a “need-to-know” basis.
3. There are Major Penalties for Violations
Employers who present a void noncompete agreement to an employee or prospective employee open themselves to significant financial liability of up to $5,000 per worker or prospective worker harmed by the conduct. The penalties don’t stop there: the use of force, threat, or other means of intimidation to prevent a person from engaging in a lawful occupation may result in a Class 2 misdemeanor. These significant penalties require a heightened degree of caution for growing Colorado entrepreneurs.
If you are a Colorado entrepreneur looking to protect your confidential information or trade secrets, contact us today to discuss your company’s legal needs. We also offer fixed-fee packages to meet the demands of our entrepreneurial clients.
About the Author
Landon Glover is a first-year student at the University of Colorado Law School focusing on entrepreneurial law and venture capital. Click here to connect with Landon.
