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Colorado’s Fundamental Policy of Voiding Noncompetes

Posted by Thomas P. Howard | Oct 01, 2021 | 0 Comments

By James Juo.

Colorado has a fundamental policy of voiding contractual noncompete provisions that do not fall within one of the statutory exceptions. Any covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void unless that provision is found in a contract (1) for the purchase and sale of a business or the assets of a business; (2) for the protection of trade secrets; (3) for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years; or (4) involving executive and management personnel and officers and employees who constitute professional staff to executive and management personnel. Colo. Rev. Stat. § 8-2-113(2); see also King v. PA Consulting Grp., Inc., 485 F.3d 577, 586 (10th Cir. 2007).

This includes any portion of the non-solicitation covenants that prohibit individual employees from soliciting plaintiff's employees after the individual defendants stopped working for plaintiff, as “Colorado law treats non-solicitation clauses as covenants not to compete.” Great Am. Opportunities, Inc. v. Kent, 352 F. Supp. 3d 1126, 1134 (D. Colo. 2018).

As for confidentiality provisions in a contract, under Colorado law, a confidentiality agreement is enforceable only to the extent that confidential information was acquired during the course of employment and does not include the general knowledge of a business operation. Q-Tech Lab'ys Pty Ltd. v. Walker, No. 01-cv-1458-REB-CBS, 2002 WL 1331897, at *10 (D. Colo. June 4, 2002). “Moreover, ‘confidential information' does not include the general ability that an individual brings into employment, or the skill and experience acquired by the individual during employment.” Id.

Such provisions were at issue in a recent District of Colorado case, LS3 Inc. v. Cherokee Nation Strategic Programs, L.L.C., No. 20-cv-03555-PAB-NYW (D. Colo. Sept. 29, 2021). LS3, an information technology company, had filed suit claiming several former employees violated their employment agreements when they left to work for Cherokee Nation Strategic Programs, a Cherokee Nation consulting firm. LS3 claimed the ex-workers breached their employment contracts to help Cherokee win a federal contract. LS3 had placed a bid on a new federal contract with the U.S. Department of Agriculture, which eventually was awarded to Cherokee.

The employment agreements contained a choice of law provision selecting Maryland, where LS3 was incorporated. But the court held that Colorado law applied to the case because Colorado had “a materially greater interest in the contract” as most of the individual defendants lived in Colorado, and Colorado had a strong public policy of not enforcing noncompete provisions that do not fall within one of the statutory exceptions. Applying Colorado law, the Court found that none of the statutory exceptions applied, and held that the non-compete provisions in the LS3 contracts are void and unenforceable.

LS3 also asserted that its contracts further contained a confidentiality or non-disclosure provision that was breached. After LS3 lost a federal contract to Cherokee, a Cherokee manager solicited the individual defendants by email to leave LS3 and join Cherokee, and informing them that Cherokee was to be awarded the contract they had been supporting. The email included an “Incumbent Questionnaire” which asked various questions regarding the individual defendants' employment with LS3. This was the basis for LS3's breach of confidentiality claim. But the information requested through the questionnaire, such as name, title, position, length of time worked, and clearance level, was information that a job applicant would list on a resume or would be asked about in a job interview—and thus fell within the category of general knowledge, skill or experience that cannot be confidential information. The Court also found that the information requested by the questionnaire were not trade secrets. The Court held there was no breach of confidentiality.

LS3's contracts also contained a duty of loyalty provision that prevents its employees, while employed by LS3, from interfering with LS3's business relationships; and LS3 asserted that the duty of loyalty provision was breached as well. The plain language of these duty of loyalty provisions, however, only prevents a current employee from generally interfering with a current or active business opportunity. Because LS3 had already lost the contract it sought when its employees were contacted by Cherokee, the Court held there was no breach of loyalty.

The attorneys at Thomas P. Howard, LLC are experienced in evaluating whether a noncompete agreement is enforceable.

About the Author

Thomas P. Howard

Thomas Howard is an experienced trial lawyer that handles intellectual property litigation nationwide, including copyright, trademark, trade secret and patent litigation, as well as complex civil litigation, including breach of contract, interference with contract, breach of fiduciary duty, conspiracy, fraud and fraudulent transfer of assets.


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