Colorado Tightens Statutory Restrictions on Non-Compete Agreements

A Colorado law taking effect in August 2025 significantly expands the state’s efforts to limit the enforcement of non-compete agreements and restrictive covenants on employees living or working in the Centennial State.

In 2022, House Bill 22-1317, signed into law by Governor Jared Polis, amended Colorado’s existing non-compete statute, C.R.S. § 8-2-113. The bill eliminated many of the law’s exceptions to its general prohibition of non-competes, such as those for managers, executives, and the professional staff of managers and executives. Left intact were exceptions for restrictions on “highly compensated individuals” earning at least $101,250 (indexed to inflation) if the agreement was necessary to protect trade secrets, and covenants for non-solicitation of customers for employees earning 60 percent of the “high compensation” threshold. These compensation floors must be maintained both at the time the agreement was signed and at the time of enforcement in order for the agreement to be valid.

The Colorado legislature tightened the existing law’s exceptions further this summer. Signed into law by Governor Polis on June 3, 2025, Senate Bill 25-083 narrowed two of the few remaining exceptions to the state’s non-compete prohibition: physician restrictive covenants and business purchase restrictive covenants. Under House Bill 22-1317, covenants related to purchasing a business, a direct or indirect ownership share in a business, or all or substantially all of the assets of a business that restricts an owner of an interest in the business were exempt from the statute’s prohibition. Nationwide, such agreements are generally allowed by state statutes similar to Colorado’s. The new law sets a time limit on such covenants not to compete, calculated by a formula based on the business’s sale price and the employee’s compensation.

The 2022 amendment imposed statutory penalties of $5,000 (which could be levied in addition to liability for actual damages, reasonable costs, and attorneys’ fees) on employers who attempted to enforce—or even presented to an employee—an agreement which ran afoul of the statute’s restrictions. The specter of these penalties is even more worrisome for employers due to the inherent difficulty of assessing whether an agreement had become void at the time of enforcement because, for instance, the targeted employee has fallen below the compensation threshold with their new employer. These restrictions remain in force under Senate Bill 25-083, which will take effect on August 6, 2025.