Valid In 2022, the Colorado State Legislature passed HB22-1317 titled Restrictive Employment Agreements Covenants on Non-Competes. This law now places a greater burden on employers in regards to non-compete agreements with employees and helps define when non-competes are valid.

Old Colorado Non-Compete Law

Non-compete covenants have generally been used by employers to restrict the ability of employees to compete with the employing company both during and after employment. Some estimates state that up to 18% of employees are currently bound by a non-compete agreement with over 38% agreeing to one at some point in their previous employment history. In Colorado, prior to the passage of HB 22-1317, covenants not to compete were typically void except in some cases. HB 22-1317 has made covenants not to compete less enforceable than they previously were and now codifies non-compete covenant law into statute.

When are Non-Competes Valid Now?

Previously, non-competes were generally void except to protect trade secrets, in the case of selling a company, and other narrowly tailored circumstances. Under the new non-compete statute, the law now says non-competes are void except:

1. If the covenant not to compete with the company’s business is made with highly compensated individual (equal or greater to average compensation for the role), is for the protection of a trade secret, and is not overly broad.

2. If the covenant not to compete involves the solicitation of the company’s customers, and not a general non-compete with the company, the covenant has to be made with someone that earns 60% or more the average compensation for the role, is to protect trade secrets, and no broader than necessary.

What about Training?

In the case where an employer pays for an employee’s training as part of employment and the employer requires repayment upon termination, the employee can only be required to pay back training if it isn’t specific for the job and the repayment occurs within two years of the training. Further, the repayment must be prorated based on the two years so if someone quits one year after the training, they would be required only to repay up to fifty percent of the cost of the training. Lastly, there are separate rules if the cost is deemed to be part of a scholarships for an apprentice.

Other Non-Compete Issues

As allowed prior to HB 22-1317, confidentiality requirements are still allowed if they are for information that is not generally known. However, if the disclosure is allowed by law (for example under whistle-blower protections), then the confidentiality requirement may be void. Non-competes involving an owner who is selling their business to another party are generally still valid.

Employees can request a copy of any non-compete or non-solicit that they have with the company at least once per year. The company will be required to give the employee a copy of the document upon request.

New Liability for Employers

The biggest change in the non-compete realm deals with penalties for non-competes that are not enforceable. The new statute has language that if a non-compete violates any of the above, the employee can receive damages of $5,000.00 under the statute in addition to injective relief and any actual damages. The employee can also receive attorney fees and costs as well.

As the new rules apply to any employee who is based in Colorado at time of termination, it is important that all Colorado-based companies and those companies that have employees in Colorado make sure they are complying with the new regulations. If there are any questions what your company needs to do, please contact me, your Denver small business attorney, Elizabeth Lewis at 720-258-6647 or schedule online today!

Real Estate Services for Business Owners

Elizabeth Lewis provides the following real estate law services to small and medium sized business owners in Denver and throughout Colorado:

• Commercial real estate purchases
• Legal review of commercial real estate leases
• Protecting your assets

Starting in January 2023, employees and some employers are required to participate in the Colorado FAMLI program. Passed in November of 2020, the new Family and Medical Leave Insurance program is a state-run program that provides family and medical lease to Colorado employees who have paid into the system, much like unemployment insurance.

 Overseen by the Colorado Department of Labor and Employment, the FAMLI program gives employees up to twelve weeks of paid time off to care for themselves or family members that are experiencing a medical or family situation that is covered under the program. Some examples of instances which are covered under the FAMLI program are the need for time off for an extended illness, to care for a newly adopted child, or to prepare for a military deployment. There are other circumstances that will also qualify for paid time off so employees and employers will need to evaluate each set of circumstances to determine eligibility.

The program is to be paid for by payments made into the system by employees and in most cases, contributions from employers as well. For the first two years of the program, a fee is paid on the 0.9% of wages. After two years, the amount may go up but is capped at 1.2% of wages; however, this amount may be changed depending on the needs of the program and whether a change is approved by the legislature. The fee is totally covered equally by the employee and the employer.

All employees are required to pay into the system unless they are federal employees, local government employees of an entity that has opted out of the program, their employer has agreed to pay the employee’s share into the program on behalf of the employee, or the employee is a “self-employed” individual as defined under Colorado state law. Self-employed individuals may opt into the system but are required to make payments for three years once they have opted into the system to ensure that they do not opt-in only to receive benefits and then opt-out after receiving them.

Some employers are also required to pay on behalf of their employees into the system. For employers with more than 10 employees that are not exempt as listed above, employers will be required to pay into the FAMLI program unless they have an internal program that meets the qualifications as required by CDLE. For employers with less than 10 employees, only the employee portion is required. At this time, the number of employees that a company employs does include employees who work both in Colorado and in other locations, but payment into the system is only required for Colorado based employees.

It will remain to be seen how this will affect Colorado small business owners. As a small business attorney, I see many instances where small businesses in places throughout the state (whether they are Denver-based small businesses or from smaller communities like Breckenridge-based small businesses or Greeley-based small businesses) are already struggling with the cost of employees. For those based in the larger areas, the prevailing (or in some cases, mandated) hourly rate of employees may start as high as $17.29 an hour, not counting any required additional payments of federal taxes, unemployment insurance, and workers’ compensation. For small businesses, they will now be required to keep open positions for anyone that takes leave under the FAMLI program and, if they choose to offer health insurance, will be required to continue to make payments for the health insurance at the same level they did while the person was employed. So, on top of missing an employee and either having to find someone (who may need training) for the period while the person is gone, a small business may also be required to pay health insurance and, for many small business owners, this may create a situation where they can no longer hire individuals when their profits were slim to begin with. For employees, it does help (especially those that work at larger companies that may be able to go the three months without the person’s help) give some assurance that they can take time off without missing as much of a paycheck (as the FAMLI program may not pay out at 100% of the employee’s pay as if they were working). However, for the small businesses on the margins, it may create a situation where they no longer hire or are much pickier about those that they do. If you are a small business, I’d love to hear your thoughts about the FAMLI program below!

If you need help figuring out how the FAMLI program fits into your Colorado small business, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Real Estate Services for Business Owners

Elizabeth Lewis provides the following real estate law services to small and medium sized business owners in Denver and throughout Colorado:

• Commercial real estate purchases
• Legal review of commercial real estate leases
• Protecting your assets

Do you use contracts with evergreen clauses? (Evergreen clauses being those where a contract automatically renews if neither party cancels it within a certain amount of time before the end of the current term.) If so, changes came into play at the beginning of this year that may have a big impact on your agreement and the terms that you have to have in it.

Evergreen contracts can be a win-win for businesses and those that they contract with. When someone needs ongoing services or products, not having to renegotiate a contract each year, or even worse having services or products cut off because a new contract wasn’t signed due to forgetfulness or other reasons, can cause chaos for a business. Having an agreement continue can ensure continuity for the business of things such as CO2 supplies for restaurants, security guards for jewelry stores, and IT services for legal practices.

However, it can also create situations where businesses can suffer. A business may not want to renew its copier services for another two years because it has gone mostly digital and paying a monthly charge for paper copies is an expense that is no longer needed. A medical practice may have hired an office manager and no longer needs to outsource some services. Recently, with COVID, we have seen many businesses go full remote so services such as janitor services, renting of office furniture, and other services and supplies for an in-person office may no longer be needed. For these businesses, a contract that automatically renews may have only downsides and not an upside.

Starting in 2022, a new law in Colorado makes auto-renewing contracts subject to specific provisions to ensure that consumers know their rights regarding such terms. Anyone using an evergreen clause must have a “clear and conspicuous disclosure” of what the terms and conditions are regarding auto-renewal. For instance, this clause may be in bold type and a bigger font than the rest of the agreement. Or it may be something that customers get disclosures in the agreement but also get a separate sheet that states that the agreement will auto-renew and the terms of such auto-renewal. All of this must be done before the contract is signed to make sure all individuals signing the agreement know the terms of the evergreen provisions upfront.

In addition to knowing what the terms are beforehand, each person signing the agreement with evergreen clauses must know their rights and have the ability to easily terminate the agreement prior to it auto-renewing. This may include the ability to terminate through a website, by email, or other means that are easily accessible to the average individual. In addition, at least once a year, the company must notify the customer that the agreement automatically renews and give the option of terminating the agreement.

If you are going to include auto-renewal provisions in any contracts that your clients sign, you must make sure that going forward you comply with the new Colorado laws. Please note, these provisions do not apply to certain industries such as public utilizes and, in some cases, insurance agents. If you are in a highly regulated industry, it is best to check with an attorney to see whether these rules apply to your industry. (For example, consumers may not be happy if their car insurance is cancelled without notice because they didn’t sign to allow automatic renewals and businesses may be very unhappy if their workers are left in the dark because the lights aren’t on.

For further information about auto-renewal provisions and the new law, you can check out the law at https://leg.colorado.gov/bills/hb21-1239. You can also always call me, your Denver Small Business Attorney, at 720-258-6647 or schedule an appointment online at www.eclewis.com/schedule and we can make sure your marketing materials and contracts comply with the new law!

If there are any questions, please contact me, your Denver Small Business lawyer, at 720-258-6647.

Real Estate Services for Business Owners

Elizabeth Lewis provides the following real estate law services to small and medium sized business owners in Denver and throughout Colorado:

• Commercial real estate purchases
• Legal review of commercial real estate leases
• Protecting your assets