Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On May 31, 2011, the Colorado Supreme Court ruled that continued employment of an existing at-will employee is sufficient consideration to support the validity of a noncompetition agreement between that employee and the employer. While Lucht's Concrete Pumping, Inc. v. Horner is ultimately a very good decision for employers, the court left several questions unanswered regarding what factors Colorado courts will consider in determining the enforceability of noncompetition agreements going forward.
The court expressly left open a key issue that is destined for further litigation. Noting that all noncompetition agreements must be assessed for reasonableness, the court stated that if “an employer enters into a noncompetition agreement with an employee with the intention of terminating the employee immediately afterwards, the agreement may fail for lack of consideration.” Of course, this rule is in tension with the rule that any benefit – no matter how small – is sufficient consideration. In this case, the trial court never evaluated the reasonableness of the plaintiff’s noncompetition agreement. The court provided no guidance as to how long it would have to employ an at-will employee who signed a post-hiring noncompetition for consideration to be valid.
Regardless of the Lucht’s decision, Colorado law still renders void any noncompetition agreement that does not fit within one of several statutory exceptions, including agreements to protect trade secrets and those with executive and management personnel and officers and employees who constitute professional staff to executive and management personnel. It also must be reasonable in duration and geographic scope. If an employer’s noncompetition agreement with an at-will employee passes muster based on those requirements, what impact does the Lucht’s decision have on employers governed by Colorado law?
- Employers that have post-hiring noncompetition agreements with employees generally will be able to enforce those agreements even in the absence of additional consideration.
- The ruling in Lucht’s leaves untouched the rule that a worker employed for a specific term must receive consideration for a post-hiring noncompetition agreement for the agreement to be valid.
- An employer that has not entered into noncompetition agreements with an at-will employee at the time of hiring should consider requesting one in exchange for continued employment.
- Don’t secure a noncompetition agreement from an at-will employee only to terminate her immediately afterward.
- Even though Lucht’s changes the law favorably for employers, the least risky practice for employers who want to ensure enforceability of post-employment noncompetition agreements is to provide consideration to alls employees whom they ask to sign, whether they are at-will employees or not.
- Rules applying to nonsolicitation agreements in Colorado are the same as those that apply to noncompetition agreements, so don’t forget to evaluate them the same way.
Lucht’s helps protect employers whose employees have entered into post-hiring noncompetition agreements. But those employers should re-evaluate those agreements, and the other terms and conditions of employment to ensure that they obtain all of the benefits the law permits.
For more on Lucht’s, continue reading at Littler’s ASAP: Colorado Supreme Court Holds Continued Employment Is Sufficient Consideration for Noncompetition Agreement