February 1, 2010:

Kamlet Reichert, LLP --- Today the Colorado Supreme Court granted certiorari review of Lucht’s Concrete Pumping, Inc. v. Horner, et al., one of the two cases detailed below.  The court is expected to hear oral argument later this year in the case, and to issue a decision in the summer or fall of 2010.  The description below will continue to be enforceable Colorado law until that time.  Kamlet Reichert will provide updates of the case status following the Colorado Supreme Court's decision.

June 30, 2009

Kamlet Reichert, LLP --- In Lucht’s Concrete Pumping, Inc. v. Horner, et al., Colorado Court of Appeals Case No. 08CA0936 (June 11, 2009)(cert. granted Feb. 1, 2010), the Colorado Court of Appeals answered a previously unresolved question under Colorado law regarding non-competes, holding that continued employment of an at-will employee is not sufficient consideration to form the basis for a covenant not to compete.  Declining to follow other states, the Court found that an employer’s forbearance from firing an at-will employee in Colorado was not sufficient consideration upon which to base a covenant not to compete entered after the beginning of employment.  Instead, for an employer to obtain a valid non-compete from a current employee in Colorado, some other thing of value must be provided, such as a pay increase, promotion, or other additional benefit in return for the new commitment not to compete.

The Court held that continued at-will employment did not give the employee anything greater than what he already had: a job for so long as the employer wished to continue employment.  As such, and because the covenant not to compete would extend beyond the at-will relationship, separate and new consideration is required.  The Court held that the independent consideration requirement “reflect[s] the fact that employees and employers have unequal bargaining power” and was consistent with Colorado public policy strongly disfavoring non-competes.

http://www.courts.state.co.us/Courts/Court_of_Appeals/opinion/2009/2009q1/08ca0936.pdf

Take Aways

Given this recent pronouncement, it is important for all employers who have employees in Colorado with non-compete or non-solicitation agreements entered sometime after the inception of employment to ensure that there was some additional thing of value given to the employee in return for the agreement.  This could be a raise, promotion, stock option grant, or something else of value.  If no consideration was given, the agreements should be re-executed, supported by some new additional consideration.  Keep in mind, Colorado courts have not resolved the magnitude of consideration that will be deemed sufficient to meet this requirement, so the best course of action is to make sure that the consideration is more than de minimis.

High-tech companies or venture capital backed businesses with employees in Colorado that generally rely on noncompetes to protect intellectual property will need to review their underlying agreements carefully to ensure that they remain enforceable.  In addition, this case is particularly important for companies that may be undergoing a financing or an exit event in which the company may be asked to make representations and warranties regarding the existence and enforceability of noncompetes.  Similarly, any company that is looking to invest in, or acquire, a business with Colorado employees should carefully review whether independent and separate value was provided at the time any non-compete or non-solicitation agreement was entered into.

Expansion of Management Personnel Exception

As always, it is imperative that any non-compete must fall under one of the four statutory exceptions set forth in Colorado Revised Statute § 8-2-113, which otherwise voids non-competes.  The good news for Colorado employers is that the Colorado Court of Appeals last week also expanded and clarified the interpretation of the executive and management personnel exception, holding that the term “management personnel” applied to a mid-level manager in a large corporation, who supervised other employees, managed an independent budget, and had a certain level of autonomy.  DISH Network Corp. v. Altomari, Colorado Court of Appeals Case No. 08CV1741 (June 11, 2009)(cert. granted Feb. 1, 2010).

This is the first time that a Colorado court has specifically addressed the difference between executive personnel and management personnel.  In doing so, it determined that “persons who conduct or supervise business would be considered ‘management personnel,’” expanding the term beyond “key personnel” or employees “in charge,” those “at the heart of the business” and “those few executives at the highest echelons of the company.”  This holding may extend the application of non-competes to middle management employees, especially in larger organizations, that may not have been clearly included in the exception prior to the issuance of this ruling.
 
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