Covenant Not to Compete Definition in Colorado?

Non compete agreement clause definition, restrictive covenants, or a covenant not to compete in Colorado is a contract by the restricted party (e.g. an employee) not to engage in business activity that is in competition with the other, protected Colorado Non Compete Statute - Covenants not to Competeparty (e.g. an employer).  The covenant not to compete definition can be mere restrictive covenants provision within a contract or a full-length agreement (non-compete agreement) in and of itself.

A Colorado non-compete agreement is put into place to protect a business from its own staff becoming business competitors.  However, both the interests of the protected party (e.g. employer) and that of the prohibited party (e.g. employee) must be weighed.  Frequently, covenants not to compete are entered upon termination of an employment or business relationship, but it can also be a pre-condition to such a relationship.  

Enforceable Versus Unenforceable Covenant Not to Compete

Typically, the general standard for evaluating a covenant not to compete or non-compete clauses in Colorado is reasonableness. However, in some states, a non-compete agreement is strongly against public policy and unenforceable.  For example, in California, non-compete agreements are not enforceable against employees but may be enforceable against stakeholders in a business. 

Competition Definition : Covenants Not to Compete Under Colorado Non-Compete Statute

Are Colorado Non Compete Agreements Enforceable?

In Colorado laws for contract competition and Colorado Non-Compete Statute,  restrictive covenants not to compete are prohibited unless the covenant relates to one of four categories:

(1) The sale or purchase of a business;

(2) The protection of trade secrets;

(3) The recovery of training expenses of an employee employed for less than two years; or

(4) Executive or management employees or their professional staff.  Notably, independent contractors do not fall within any of these exceptions. 

Specifics of Covenant not to Compete Clauses

So, the question about the competition definition is how long should restrictive covenant clauses last and how far in geographic scope should it be? 

The duration of a covenant not to compete agreement is dependent upon the nature of the business. What is too lengthy of a restriction in one field may be too short in another industry to offer adequate protection. Similarly, the geographic spans of a non-compete clause are dependent upon the geographic scope of the protected party’s business.

For example, if a protected party exclusively does business in several cities within a particular state, it’s reasonable to presume that precluding competition by the employee out of state is an unreasonable limitation.  See also information about non-disclosure agreements.

Sample Court Outcomes Under Colorado Non-Compete Statute

The following provide several examples of a restrictive covenants not to compete agreements CO courts have upheld as reasonable under Colorado Non-compete statute and Colorado law:

  • Five-year, one county restriction on ophthalmologist was reasonable and enforceable
  • Five-year, one county covenant with hospital was enforceable against doctor since he sold his business and was a member of the professional staff, thus qualifying under two of the exceptions to the statute
  • One year non compete provision restricting headhunters from contacting potential candidates was enforceable under trade secret exception to Colorado non-compete statute
  • Three-year, twenty-mile covenant enforced against husband in divorce proceeding requiring the transfer of photographic developing business to wife, falling into the sale of the business and the executive management staff exceptions to the Colorado non-compete statute.

See Gibson v. Angros, 491 P.2d 87 (Colo. App. 1971); Boulder Medical Center v. Moore, 651 P.2d 464 (Colo. App. 1982); Management Recruiters of Boulder v. Miller, 762 P.2d 763, 764-766 (Colo. App. 1988); In re Marriage of Fischer, 834 P.2d 270 (Colo. App. 1992).

Avoid Costly Legal Mistakes. See How We Can Help You With Business Law Matters

Contact our Colorado business attorneys for help with your non-compete agreements and contract competition requirements. Call 1-866.601-5518.

3 comments on “Colorado Non-Compete Statute – Covenants not to Compete

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>