Reasonable Restraints in Colorado
The prior post begs the question most frequently asked by clients: what is a reasonable restraint? That is, what kinds of geographic and temporal restraints will be enforced by Colorado courts -- assuming that the non-compete falls within one of the four exceptions set for in C.R.S. 8-2-113(2)?
The best, but perhaps the most frustrating, answer is that it depends. As the tenth circuit noted in 1999, "The reasonableness of restraint in a restrictive covenant is determined on a case-by-case basis, taking into account the particular facts and circumstances surrounding the case and the subject covenant."
Because the particular facts of a case are so important, there is a great range in the restraints that have been enforced. On the one hand, for example, a Colorado federal district court has enforced a nation-wide restriction as being reasonable in geographic scope. Another decision even suggested that a world-wide restraint might be reasonable under the proper circumstances. On the other hand, Colorado courts have limited the geographic scope of other non-competes to a particular city or town in Colorado.
It is true that Colorado courts have consistently applied some general rules about how broad restraints may be. The Colorado Court of Appeals as recently as 2006, for example, noted that covenants not to compete for terms up to five years and within distances of 100 miles are commonly upheld.
Many of those decisions enforcing these broad restraints, however, arise from non-competes in agreements for the sale of businesses. Many decisions outside of Colorado have held that a non-compete ancillary to the sale of a business may be enforceable even when a covenant of similar breadth incident to employment would not be. (And Colorado courts have noted that trend). Accordingly, to the extent that other decisions provide guidance about the reasonableness of any restraint, it is important to consider a decision that relies on similar facts for the enforcement of the non-compete. Sale of business decisions don't necessarily provide guidance for cases in which a non-compete's enforcement relies upon the employee's status as a manager or executive.
It also may be wise to be skeptical about the guidance provided by older decisions because technological innovations have altered the way in which businesses operate. Many businesses now serve far broader areas. Those businesses now may be able to argue that the geographic reach of any non-compete should be broader. On the other hand, technological innovations may lead certain companies, particularly high tech companies, to change their business model much more quickly than before. These changes may lead courts to limit the duration of any non-compete tied to the companies.
