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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 executive 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
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