Competition bans are highly controversial, especially when some companies use non-competition bans to make it more difficult for low-income people to find new jobs. For example, a sandwich restaurant chain in Florida recently made headlines across the country by rolling out non-competitive agreements to prevent its sandwich makers from working for competing restaurants. Colorado has made competition bans valid in these four areas, but what do they really mean for an entrepreneur or franchisor, and what are their limits? I will unpack all the categories below, so that as a business owner, you can protect his business while you work in Colorado. Specifically, to be applicable, the restrictions imposed by the agreement must be proportionate in terms of duration and geographical scope. In this sense, a non-competition agreement should not be more comprehensive than necessary to protect the interests of the promised and should not impose severity on the manufacturer. In particular, non-competition obligations are generally met for terms of up to five years and 100-mile distances. See Reed Mill – Lumber Co., Inc. v. Jensen, 165 P.3d 733 (Colo).
A company operating at the national level could prevent an employee from competing anywhere in the country. However, a restriction prohibiting an employee from working outside the location of the business would likely be inappropriate. In addition, when an employee only works in one sector, it is unreasonable to prevent him from working in another field. For example, if a company is only active in Colorado and an employee decides to take over a position at a similar company in Connecticut, a non-compete agreement preventing that employee from holding a position in Connecticut would probably be inappropriate. Therefore, when developing a non-compete agreement under trade secrecy, the employer should ensure that the restrictions focus on the protection of business secrecy and do not generally prohibit a worker from working for competitors and that he does not have an unlimited or excessive scope in the territory. Even if a company is able to demonstrate that the non-competition agreement is authorized by law, the company must nevertheless demonstrate that the restrictions imposed by the agreement are appropriate. Among other things, in order to determine whether the restrictions are appropriate, the court will consider that this third derogation from Colorado`s public policies against non-competition involves staff training. If you are an entrepreneur or franchisor who runs a business that requires paid training time, a non-compete clause is proven if you include in the employment contract a clause requiring reimbursement of training costs. This should not be monetary, but could require employees to work for the company for a reasonable amount of time, which would allow it to obtain a return on their investments in training. Without this reimbursement clause, workers can receive training from one company and change jobs in another, and non-competition clauses are not maintained. To protect your investment and ensure that your training programs benefit your business and not a competitor, remember to include a training compensation clause in your staff contract.
In the State of Colorado, non-competition obligations are generally not permitted unless they are covered by one of four exceptions: whether a particular non-competition agreement is part of one of three legal exceptions for binding agreements and if the agreement is appropriate, factual investigations are established on a case-by-case basis.