In early January of 2023, the Federal Trade Commission announced that it would be pursuing a new rule that would ban employers from imposing noncompete clauses on their employees. The FTC’s proposed new rule would make it illegal for an employer to:

·     enter into or attempt to enter into a noncompete contract with a worker;

·     maintain a noncompete contract with a worker; or

·     represent to a worker, under certain circumstances, that the worker is subject to a noncompete contract.

The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete clauses and actively inform workers that they are no longer in effect.

Whether, when, and in what form, the FTC’s proposed new rule will take effect remains to be determined and is subject to the FTC’s rulemaking process. The FTC reportedly will not vote on its final rule until April of 2024.

Moreover, the legality of any adopted rule is almost certain to be tested through litigation. Indeed, the FTC has not often, if ever, regulated contracts between single employers and their workers. Whether the FTC is overstepping the authority granted to it by statute—15 U.S.C. § 41 et seq.—will likely be a hotly-contested topic.

As it is currently contemplated, the FTC’s new rule would supersede any state statute inconsistent with the new rule. Regardless, employers and employees alike should be aware of current Colorado law concerning noncompete agreements and related issues concerning the protection of trade secrets.

Colorado law itself recently changed—effective August 10, 2022—concerning noncompete agreements. Noncompete agreements entered into or renewed after August 10, 2022, are deemed void under Colorado law unless an exception applies. See C.R.S. § 8-2-113; HB 22-1317 § 2(2) (clarifying that the recent change is not retroactive). The main exception is for “highly compensated” workers—$112,500 in annual compensation for 2023—where the noncompete clause “is for the protection of trade secrets and is no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.”

 As such, Colorado law concerning trade secrets is important to understand as well. A trade secret in Colorado is defined as follows:

“Trade secret” means the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value. To be a “trade secret” the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.

C.R.S. § 7-74-102(4) (emphasis added). Whether information qualifies as a “trade secret” in Colorado requires a case-by-case evaluation. When a departing employee misappropriates trade secrets for his or her personal gain or a new employer’s benefit, the former employer has a range of remedies, including suing the employee and any new employer for injunctive relief or damages.

In addition, Colorado’s noncompete law does allow for agreements to not solicit customers if the worker earns at least sixty percent (60%) of a “highly compensated” workers’ compensation—$74,250 in 2024. The non-solicitation covenant must be no broader than necessary to protect the employer’s legitimate interest in protecting trade secrets.

Employers have legitimate interests in ensuring that a departing worker does not steal the company’s business through the misappropriation of trade secrets or other unfair methods of competition. As business groups have argued, protecting trade secrets—through noncompete agreements or otherwise—helps protect their investments in research and development.

On the other hand, the legislature has determined that Colorado’s public policy favors freedom for employees to earn a livelihood in their chosen line of work, including allowing employees to compete fairly with a former employer. Numerous Attorneys General nationwide have advocated for the abolishment of noncompete agreements to increase worker mobility, wages, and entrepreneurship.

What should employers and attorneys advising employers

do while the FTC makes up its mind?

First, employers should at least take an inventory of existing noncompete, non-solicitation, and confidentiality/nondisclosure agreements in order to be prepared to act quickly when the time comes. Such an inventory will also reveal potential holes in their legal regime vis-à-vis their employees, especially if employees have moved into positions with access to more sensitive information. Likewise, this inventory will help employers assess whether there is some other less burdensome covenant in its agreements that it can implement; if an overbroad restriction isn’t necessary to achieve the employer’s goals, a revised and more narrowly-tailored agreement may be more likely to survive a legal challenge.

Second, employers should assess what other measures they can take to protect their trade secrets. As noted above, the enforceability of Colorado non-compete agreements can turn on whether the employer took steps to protect their trade secrets. Such protection may include both internal information control protocols and external agreements with vendors or customers.

Third, employers should evaluate employee wages to determine who will be deemed a “highly compensated” employee or would otherwise meet the 60% of “highly compensated” threshold. Knowing who falls within or outside these categories informs allocations of employee responsibilities and potential salary adjustments. 

What should employees and attorneys advising employees

do while the FTC makes up its mind?

First, employees should make sure they understand their existing contractual obligations to their employer. Doing so requires careful review of all agreements employees have signed, as well as reviewing any applicable employee handbooks (which may or may not impose contractual obligations) and internal policies.

Second—and especially if an employee is considering making a move to a new job or starting their own business—employees should keep a close eye on any FTC announcements as to its proposed rule and consider the timing of any departure in light thereof.

Third, employees should carefully consider their actions in connection with any departure and new work to avoid any implication of wrongdoing in connection therewith. Consulting with counsel concerning any contractual restrictions—as well as applicable statutory and common law—well in advance of making any decisions or taking action is prudent!

Aaron Goldhamer

focuses on commercial litigation cases.

C.R.S. 8-43-402 states that it is a Class 5 felony “if, for the purpose of obtaining any order, benefit, award, compensation, or payment” in the workers’ compensation system, “or for self-gain or for the benefit of any other person, anyone willfully makes a false statement or representation material to the claim.” Also, if a workers’ compensation Claimant does so, they “shall forfeit all right to compensation under said articles upon conviction of such offense.”

Presumptive penalties for Class 5 felonies in the state of Colorado are: (1) fines ranging from $1,000.00 to $100,000,00; (2) 1 to 3 years in the Colorado State Prison; and (3) two years of parole.

The statute clearly leans into punishing individuals who lie to obtain benefits. In my career as a workers’ compensation attorney spanning roughly 30 years, I’ve rarely seen it deployed. Whether that means it actually works to dissuade miscreants, however, is likely unknowable. Because losing at least one-third of income is an immediate result of missing work in the system, maybe lying to obtain “any order, benefit, award, compensation or payment” isn’t quite the lucrative grift some assume it to be. (Note: it isn’t.) But if a public purpose is served by penalizing those who lie to obtain workers’ compensation benefits, it is past time to amend the statue and make it equally clear that anyone who lies to prevent an injured worker from obtaining benefits is equally offensive and also subject to prosecution. Far too often, I encounter insurance-company hired doctors who, perhaps for the sake of securing additional income from the insurance company who hired them, seem willing to put the insurance company’s “wants’ before an injured workers’ needs. In those instances where protecting their income steam crosses the line into making false statements, shouldn’t there be consequences? 

The Money Hammer

Generally, in Colorado, employers get to pick the doctors who treat their injured employees. Depending on the employers’ location, they may have to provide the injured worker with up to four different choices, but that hardly “cures” the power imbalance. Moreover, despite that gross imbalance of power, employers and their insurers can also second-guess treatment recommendations made by doctors (again, the ones they picked). They can force injured workers to undergo so-called “independent” medical examinations (IMEs). This happens whenever the self-inured employer or workers’ compensation insurer does not feel like paying for treatment (like an expensive surgery) recommended by one of the treating physicians they picked to treat the injured worker.

In practice, and not surprisingly, the doctors hired to perform these “independent” medical exams often issue opinions favoring the people who pay them to meddle. This system can prevent injured workers’ from getting the reasonable, necessary and/or related medical treatment they need. 

In fact, over time injured workers can be forced to attend multiple IMEs during the life of their claim. Additional IMEs can even be with different doctors. Pursuant to C.R.S. § 8-43-404-(1)-(a) injured workers can be forced to submit to these IMEs “from time to time” and nothing in the law flatly bars a self-insured employer or workers’ compensation carrier from switching to a different doctor if they weren’t satisfied with the “service” provided by their first hired gun. 

Injured workers cannot refuse to attend these IMEs without risking the loss of benefits. Of course, injured workers can go to court and fight to obtain the treatment they need. But to do that, the injured worker is often forced to spend as much money to fight for care as the injured workers’ employer or insurer spends to keep them from getting it. That’s unjust and is another case of deep pockets prevailing over empty ones. The workers’ compensation laws in the state of Colorado should be amended to balance the IME system. When an injured worker is forced to attend an IME, the self-insured employer or workers’ compensation carrier who scheduled that IME should be required to pay the injured worker an amount equal to what was spent on the IME. This would enable the injured worker to pay for an IME with a doctor chosen by the injured worker.  After all, it is the self-insured employers and insurance companies who force injured workers to attend IMEs. They should bear the full cost of a process they started. 

Finally, when considering whether our workers’ compensation laws should be amended to level the playing field, we need to remember that, in 1998, the Colorado Supreme Court concluded that, unlike treating physicians, IME physicians owe no duty of care to the injured workers they evaluate. Martinez v Lewis,  969 P.2d 213 (Colo. 1998). While IME doctors cannot cause, or contribute to cause, actual physical injuries to injured workers, the opinions provided by IME doctors can be just as devastating. The opinions if IME physicians often can and do prevent injured workers from getting treatment that the injured worker’s treating physicians deemed reasonable, necessary and related.  At the very least, the IME process forces injured workers to spend money they rarely have just to secure treatment recommended by actual treatment providers. Sadly, according to Martinez, IME doctors owe a duty of care only to the people who pay them. 

It's unlikely that this will change in the near future. Unless and until it does, however, injured workers will never enjoy some of the “freedoms” that only money can buy.

 Larry Free

focuses on workers' compensation cases.