Non-Compete Agreements & Non-Disclosure Agreements Can Protect Your Business

Owning and operating a profitable business requires a hefty investment of both time and money. Unfortunately, employees, partners, and associates may try to capitalize on your success by ‘borrowing’ your ideas and using them elsewhere. Non-disclosure agreements and non-compete agreements can protect your business and the time and money you have invested in it.

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Disclaimer (4/24/24) 

On April 23, 2024, The Federal Trade Commission (FTC) issued the Non-Compete Clause Rule that effectively bans most non-compete clauses nationwide. That means the non-compete clause information in this article is invalid. However, the ban’s future is unclear as legal challenges are anticipated in the coming weeks. We will follow emerging litigation and update our content once there is a definitive outcome. If you have questions about an existing non-compete agreement or how to protect your business in the future, please contact our office.

What’s a Non-Compete Agreement?

A non-compete agreement formally restricts an employee, contractor, or company from engaging in certain competitive activities. Non-compete agreements can be used to protect your products and ideas from outside competitors.

You’ve spent valuable time and money training your workers. The last thing you need is for them to take that training elsewhere, or even use the information they have gleaned from your business to compete against you in the same market.

When are Non-Compete Agreements Valid in Colorado?

Businesses are allowed to protect themselves from unfair competition, but not from all competition. Competition is an essential component of free trade in the United States, and Colorado law is very clear that people should be able to engage in productive employment.

Agreements that restrict trade, such as non-compete and non-solicitation-of-customers agreements, are generally unenforceable unless they relate to contracts for:

• the purchase or sale of a business or its assets
• protecting trade secrets
• recovering education or training expenses associated with an employee who has been with an employer for less than two years
• a restriction on executive or management personnel or staff

Colo. Revised Statutes § 8-2-113

Non-compete Agreements Must be Reasonable

Non-compete agreements must be reasonable in two areas: duration and geographic scope.

The duration refers to how long the non-compete agreement stands after you terminate your employment. Colorado courts usually find one or two years to be a reasonable amount of time for a non-compete agreement. Anything beyond that, especially longer than five years, is generally not reasonable. An employer cannot limit you from working that long after you’ve terminated your employment.

Geographic scope means the area in which you can continue to work. For example, an employer cannot prevent you from working for competitors in the western United States or the state of Colorado. Rather, they must limit the non-compete agreement to a smaller geographical region — perhaps 20 miles from your former place of employment or the Denver metro area.

When are Non-compete Agreements Illegal in Colorado?

It is unlawful to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place the person sees fit. C.R.S. § 8-2-113

Any employer who does so can be charged with a class 2 misdemeanor.

How Can a Non-Compete Agreements Help My Company?

A non-compete clause in an employee contract protects your business in the following ways:

• prevents the unauthorized spread of valuable trade secrets
• allows you to recoup the money spent on educating or training if they leave your business before two years
• allows a specified term of employment for executive and upper management personnel and officers

What’s a Non-disclosure Agreement?

A non-disclosure agreement is a contract that prohibits an employee from disclosing information to either competitors or a specified third party. It also spells out the responsibilities the employee has when it comes to safeguarding the information.

Why Your Business Needs Non-Disclosure Agreements

Performance and innovation are at the heart of most successful businesses. You or your team has likely spent considerable time and effort developing new products and approaches to make your business more effective. It is a smart move to protect others from misappropriating these developments.

According to a March 2016 Forbes article, non-disclosure agreements can protect your ideas in the following five ways:

• presenting new and innovative products or practices to potential new partners or investors
• sharing sensitive or private information about your business with potential buyers
• demonstrating a new product or practice to prospective buyers or licensees
• receiving services from outside agents who may have access to sensitive information
• allowing your employees access to confidential information as part of their job responsibilities

What Should be in a Non-Disclosure Agreement?

Key elements that you should include in a non-disclosure agreement are:

• the names of the parties involved
• a thorough description of the product, technology, or idea to be protected
• possible exceptions to the agreement
• the term or length of time the agreement is in force

We Can Help You Create Valid Non-Compete Agreements

If you’re interested in creating non-compete agreements or non-disclosure agreements to protect your business, our business attorneys can help you. Call 303-688-0944 to begin your case assessment.