Proposed bill would significantly limit use of non-compete agreements by Colorado employers

colorado capitol
Posted at 7:40 PM, Apr 14, 2022
and last updated 2022-04-15 07:19:38-04

DENVER — There’s a lot of paperwork that typically comes with the start of a new job. There’s paperwork for taxes, insurance, retirement, emergency contacts and more.

Restrictive employment agreements, also known as non-compete agreements, might also be part of that paperwork.

Non-competes place limits on where an employee can work after leaving a company so that they cannot simply take their knowledge or expertise to a rival business. The agreements might ban employees from accepting jobs at similar businesses within a certain distance or a certain timeframe.

However, some worker groups say these restrictive employment agreements are being applied unfairly to low-wage workers, like coffee baristas or sandwich shop employees.

Currently, Colorado law specifies that the agreements only apply to people in management and executive roles within a company. However, David Seligman, executive director of Towards Justice, says that hasn’t stopped businesses from using these agreements for other workers.

Workers don't know and can't understand whether they're non-compete agreement would be illegal or not,” Seligman said.

Legal costs for an employee trying to fight a non-compete can also be too costly to resolve.

A bill making its way through the Colorado legislature aims to clarify state laws around the practice to clearly spell out who these agreements can apply to.

House Bill 22-1317 would limit non-competes to employees making more than $101,000. It would also stipulate that businesses must present the agreement to applicants to review before they accept a position with the company.

“Non-competes stifle innovation. They make it difficult for employers to recruit talent and they make it difficult for talent to go places and move up the ladder,” said Rep. Kerry Tipper, D-Jefferson, the bill’s prime sponsor. “What the bill did was to try and put some more safeguards on those non-compete provisions.”

One of the more notable non-compete cases in recent history is that of Jimmy John’s.

A 2014 New York investigation and lawsuit found that the sandwich chain was barring its employees from working for any other sandwich shop or deli for two years after leaving the company. Employees were also barred from working within two miles of a Jimmy John’s restaurant that made at least 10% of its revenue from sandwiches.

That case was settled in 2016, and the restaurant chain agreed to drop its non-compete agreements from its hiring documents.

However, Seligman says that company certainly isn’t the only one to use the agreement. He and Tipper say there are examples of these restrictive practices being used in restaurants, childcare facilities, pools, healthcare settings, the tourism industry and more.

“We see workers with non-compete agreements are disproportionately likely to be paid lower wages than they should be otherwise, disproportionately likely to be mistreated,” he said.

Seligman believes the bill would give employees the tools they need to be able to challenge these agreements without going to court and would provide critical bargaining power to workers to be able to leverage a job offer for better pay.

Tipper says she understands why these types of arrangements apply to people in higher positions who are privy to proprietary information.

There’s also a portion of the bill that allows companies to be paid back for money spent on training an employee if they leave within a certain amount of time.

During its first committee hearing this month, some business groups warned about the negative effects the bill could have on businesses. That sentiment was echoed during the floor debate Thursday when several Republicans raised concerns about how businesses still recovering from a pandemic, and in the midst of a labor shortage, would be affected.

“The last thing a business wants is for someone of any age to come in, learn your trade secrets, learn your business model and learn the things that you do that give you a competitive edge in business and then walk out three, four, six, eight months later,” Rep. Richard Holtorf, R-Akron, said.

He argued that this will make more small businesses leave the state and says the legislature needs to be looking at more ways to help businesses, not put more restrictions on them.

Tipper contends that there are state and federal laws in place to protect trade secrets, customer lists and more, along with non-disclosure agreements.

For now, the bill will continue to make its way through the legislature as lawmakers consider whether employment laws in the state need a rewrite.