October 7, 2022 | Gary J. Benson, Esq.

Article contributed by DWORKIN, CHAMBERS, WILLIAMS, YORK, BENSON & EVANS, P.C.

All Colorado employers should be aware of two pieces of legislation Governor Polis signed into law this year. Employers must now provide additional information regarding unemployment benefits when terminating an employee, and new restrictions have been placed on the enforcement of non-compete agreements. The most significant details of these change to Colorado law are discussed below. If you have any specific questions about these or other employment law issues, please feel free to contact Dworkin, Chambers, Williams, York, Benson & Evans, PC at (303) 584-0990.

Notice Requirements for Unemployment Benefits

Employers must provide notices with specific information about unemployment benefits to terminated employees at the time of separation. Previously, separation notices only needed to include the following:

• A statement that unemployment insurance benefits are available to unemployed workers who meet the eligibility requirements under Colorado law;
• Contact information to file a claim;
• Information the worker will need to file a claim; and
• Contact information to inquire about the status of their claim after it is filed.

Senate Bill 22-234 was signed into law on May 25, 2022 and expands on the information that must be provided in a separation notice. In addition to the above information, separation notices now must include the following:

• The employer’s name and address;
• The employee’s name and address;
• The employee’s identification number or the last four digits of the employee’s Social Security number;
• The employee’s start date, last day of work, year-to-date earnings, and wages for the last week worked; and
• The reason for termination.

Separation notices can be in either electronic or hard copy, so long as they are provided at the time of separation.

It is unclear whether this new notice requirement will be limited to claims for unemployment benefits or may impact litigation involving terminated employees. For example, an employer may have reasonable grounds to terminate an employee who is ultimately separated as part of a reduction in force. If the terminated employee files a claim alleging his/her separation was discriminatory or retaliatory, will the employer’s defense be impacted if the separation notice does not state the other, reasonable grounds for termination? At a minimum, employers run the risk of damaged credibility by not providing all relevant reasons for termination.

New Restrictions on Non-Compete Agreements

Non-compete agreements are generally unenforceable under Colorado law. Previously, the law provided the following four exceptions to this general prohibition:

• Non-compete agreements to protect trade secrets;
• Non-compete agreements to protect the purchaser in connection with the sale of a business and/or its assets;
• Non-compete agreements to recover the expense of education or training an employee of less than two-year duration; and
• Non-compete agreements to restrict executive and management personnel or professional staff to executive/management personnel.

House Bill 22-1317 was signed into law on June 8, 2022 and significantly limits the ability to enforce non-compete agreements. The changes discussed below will apply to all agreements executed after August 10, 2022. Agreements executed prior to that date will not be impacted by the new restrictions.

First, the exception for executive/management personnel and their professional staff has been completely removed. As a result, employers will no longer be able to simply have senior executives and their staff sign a non-compete agreement.

Second, a compensation requirement has been added to enforce non-compete agreements for the protection of trade secrets. Such non-compete agreements are now enforceable only against highly compensated workers. A highly compensated worker is one who earns an amount of annualized case compensation equal to or greater a threshold amount determined by the Colorado Department of Labor and Employment. This amount is currently set as $101,250. The worker must qualify as highly compensated both at the time the agreement is executed and at the time it is enforced.

Third, non-solicitation agreements are expressly permitted but can be enforced only against employees who earn at least 60% of the threshold amount for highly compensated workers (currently $60,750). Both non-solicitation agreements and non-competes to protect trade secrets cannot be broader than reasonably necessary to protect an employer’s legitimate interest.

Fourth, non-compete agreements cannot be enforced unless the employer provides the worker with advance notice of the covenant and its terms. For prospective workers, the employer must provide such notice before the prospective worker accepts an offer of employment. For current workers, the employer must provide notice at least fourteen days before either the effective date of the covenant or the effective date of any increased compensation or change in terms of employment, whichever occurs first. Notice of a non-compete and its terms must be provided in a separate document in clear and conspicuous terms.

In addition to the above changes, the new law expressly permits enforcement of the following under certain circumstances: (1) covenants to recover the expenses of educating or training workers beyond customary, on-the-job training; (2) reasonable confidentiality provisions; (3) covenants for the purchase and sale of a business or its assets; and (4) provisions for the repayment of a scholarship if the recipient fails to comply with the conditions of the scholarship agreement.

Finally, any employer who offers, enters into, or attempts to enforce a void non-compete agreement can be liable for a worker’s actual damages plus a penalty of $5,000 per harmed worker. Employers should immediately review and revise the language in any standard non-compete provisions they utilize to ensure compliance with the new law.

If you have any questions regarding these new laws, or any other employment issues, please do not hesitate to contact Gary Benson at gbenson@dnvrlaw.com for an in-depth analysis of your issue.