Legal Services for Startups & Savvy Businesses in Colorado

To Non-Compete or Not to Non-Compete: What Was the Question?

The question is, “should I have a non-compete agreement with my employees?”

If you’re asking, the answer is almost certainly yes.

A non-compete agreement is a contract (or, perhaps more simply, a clause within an employment contract) between an employee and an employer, where the employee agrees not to enter into competition with the employer after the employee terminates employment.

That’s all well and good, but there’s a problem: Judges don’t like enforcing non-competes, because they present a restraint on a person’s right to earn a living.

So if judges don’t like ‘em, why have one?

I have a friend whose father is a tax lawyer. He’s fond of saying, “if in doubt, deduct it.” As long as there is a good faith basis for any tax deduction, the IRS is unlikely to impose a punitive fine against you for taking a deduction. The worst that will happen is that they will decide that you were never entitled to the deduction, which puts you squarely where would have been if you had never taken the deduction in the first place.

I would add a caveat to the “if in doubt, deduct it” tax deduction credo: “Don’t get greedy.” In the tax example, while one or two borderline deductions are unlikely to raise the ire of the IRS, a whole bunch just might.

Not getting greedy is even more critical for non-competes. The more narrowly tailored to reasonable and specific circumstances of your company, the more likely a court will enforce your agreement. For example, if your employee is a programmer, and your non-compete clause says, “Employee X will not directly or indirectly participate in any business that involves computer programming for the next three years in Colorado,” your non-compete will be worthless and unenforceable.

Employment law varies significantly from state to state, and non-compete agreements are a good example of how. In Colorado, our laws make it particularly difficult to enforce a non-compete agreement. In accordance with C.R.S. 8-2-113, covenants not to compete are presumptively void unless they meet certain exceptions. For most, the conditions of the non-compete must be narrow and the employee must be some form of “executive,” “professional,” or “management personnel.”

If you’re looking to draft a non-compete agreement, please check with a licensed attorney to make sure that the language in your agreements falls within one of the statutory exemptions.

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