Unraveling the Enforceability of CO Non-Solicitation Clauses
MLMW often gets questions involving the enforceability of non-compete agreements in Colorado, where our practice represents both companies and individuals. As enforcement actions increase both in and out of court, the gray areas surrounding the scope of what is enforceable has become heightened. Since a non-compete/non-solicitation agreement often contains a clause awarding the prevailing party their attorneys fees, understanding enforceability of these agreements is important before making the economic decision to litigate.
As we've written previously, non-compete agreements in Colorado are void unless one of the statutory exceptions are found. The most common statutory exceptions are the executive and management personnel exception, agreements against competition in the context of the sale of the company, and agreements to enforce protections of a company's trade secrets. But what about provisions that don't specifically address the work of the company, but rather the solicitation of company’s employees or clients? Non-solicitation clause interpretation is where a particular gray area in Colorado law is some of the most pronounced.
At least one Colorado case has recognized that restraining the ability to solicit work from customers or clients of the business is itself an agreement barring competition. As such, the lens through which a non-solicitation clause should be presumptively viewed is that the clause itself is a non-compete. Whether it's called a non-solicitation clause or a non-compete is not going to matter. The court is going to look at substance rather than the name of the agreement or title given to a particular section.
What courts do focus on is what type of solicitation is prohibited. For example, individuals still may be subject to an enforceable non-solicitation clause even where a presumptively invalid non-compete agreement exists, such as for a lower-level worker (i.e., not management or executive level). It is the type of non-solicitation clause that will drive the court's analysis. If a non-solicitation clause is geared towards clients or customers, it would be viewed similarly to a general non-compete and could be held invalid. However, if the non-solicitation provisions are only related to employees of the company (seeking to prohibit an employee from taking other employees with them to start a new venture), such provisions have been held enforceable against lower-level employees in Colorado, even if a non-competition agreement itself is invalid.
The attorneys at MLMW are experienced in drafting and enforcing non-competition, non-solicitation and non-disclosure agreements in Colorado. Please contact us if you would like to speak with us about drafting or enforcing non-competes.
Reed F. Morris is a Colorado business and real estate litigation attorney with Mallon Lonnquist Morris & Watrous, based in Denver, Colorado. Reed regularly represents businesses and individuals in business transactions and disputes, from pre-filing through trial, and can be reached at email@example.com.