Non-compete clauses

Employment agreements commonly have provisions prohibiting employees from competing with the employer after the termination of the employment.  These clauses are declared void under Colorado law, Colorado Revised Statutes, Section 8-2-113(2), subject to exceptions for contracts for purchase and sale of a business, protections of trade secrets, recovery of traning expenses, and executive and management personnel and officers and employees wo constitute professional staff to exectuive and management personnel.  Assuming that an employee falls into one of the classes for which such covenants are allowed, the clauses are still subject to restriction.  To be enforceable, they must be reasonable in geographic scope and in time.   

A seller of a business can expect a non-compete agreement to be enforced according to its terms to protect the buyer of the business from unreasonable competition by his seller. 

Executive and management personnel and their professional staff can expect non-compete agreements to have some enforceability, if they are otherwise reasonable. 

Many employees in hi-tech environments are designated "managers," but they are not true "management" personnel.  At most they are like the foreman or "strawboss" of a low-tech work crew.    Such employees may have clauses in their contracts for the protection of trade secrets.  The employer will assert the enforceability of the contract based on the trade secret exception.  Thus an employee who jumps from one employer to another may subject his new employer to liability, if he takes the former employer's "trade secrets" with him for use with the new employer.  Symantec is currently engaged in litigation with Macafee over a claim that a former employee who took a job with Macafee brought secret code belonging to Symantec with him and used it in Macafee's product.  In addition to injunctive relief, there may be exposure to criminal liability under federal and state law for theft of trade secrets. 

The geographic extent of a non-compete clause must be reasonable.  Appellate decisions from Colorado have not enjoined competition outside the borders of Colorado, but the Colorado cases have not imposed any legal prohibition against doing so if proper jurisdiction is present.  Thus an employer whose business is solely in Denver can not expect to enforce a non-compete covenant in Colorado Springs, where no business is done, even though the covenant included the entire State of Colorado.   

The trade secret exception is open to much litigation.  When is a secret a secret?   An employee who became expert in an area of the employer's business may posess no trade secrets, where the knowledge and information needed to do his job is widely published in the industry.    If the secret has been disclosed by the employer or it is not a secret of the employer's but that of a different entity, the covenant will not be enforced.  Information which is not in fact secret, can not be a trade secret.

Copyright 1998 - George C. Wing - all rights reserved