Each year, Colorado raises the income threshold for the definition of a “highly compensated employee.” On January 1, 2026, the threshold is projected to increase to $130,014. For a non-compete agreement to be enforceable, when the agreement is entered into and when it is enforced, the worker must earn an “annualized cash compensation” of at least that much. For a non-solicitation agreement to be enforceable, the worker must earn at least 60% of the threshold. The Restrictive Employment Agreements Act, which took effect in 2022, ties the enforceability of non-compete and non-solicitation agreements to the ever-increasing threshold set by the Colorado Department of Labor and Employment, Division of Labor Standards and Statistics. The annual increase marks a good opportunity for employers to review the restrictive covenants that they require their workers to sign.
Legal Requirements Under the Restrictive Employment Agreements Act
Under the 2022 law, each non-compete and non-solicitation covenant must meet additional requirements. Key among them, the covenant must be “no broader than . . . reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.” Also, employers must provide the worker with separate written notice of the non-compete and/or non-solicitation covenant. The notice must:
- Be presented in a separate document from the agreement
- Be provided at least 14 days before the agreement’s effective date
- Include clear and conspicuous terms
- Be signed by the worker
Employers Face Risks for Non-Compliance
Employers should take care to comply with the law. If an employer offers or attempts to enforce a covenant that violates the law, the employer may be subject to an enforcement action brought by the worker. The action can also be brought by the Colorado Attorney General or the Colorado Department of Labor and Employment, Division of Labor Standards and Statistics. The employer may be liable for actual damages, declaratory judgment, injunctive relief, statutory penalties per worker harmed, and the costs and reasonable attorney fees incurred for the enforcement action.
Why Annual Reviews Matter Amid Shifts in the Economy and Workforce
An annual review is always a key part of preventative maintenance, but it will be especially important in the coming months and years. Amazon made headlines this fall when The New York Times and other major media outlets reported that Amazon plans to replace hundreds of thousands of workers with robots in less than ten years. The shift stems in large part from the implementation of artificial intelligence. Over the summer, Fortune quoted Ford CEO Jim Farley predicting that AI will eliminate half of all white-collar jobs. Those changes may not come quickly or at all. But a week ago, the Associated Press compiled layoff announcements from companies across many industries, due to slowing demand and other economic factors. Whatever the cause, rising job losses mean that non-compete and non-solicitation agreements will come under increasing scrutiny.
Need Guidance on Enforceability or Drafting?
If you have any questions about the enforceability or drafting of any non-compete or non-solicitation covenant, please feel free to contact me.
