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July 30, 2019

Colorado Court of Appeals Declines to Revise Overly Broad Noncompetition Agreements

Colorado employers may want to consider whether their noncompetition agreements are narrowly tailored to meet their needs or whether some revision may be prudent, in light of a decision rendered by the Colorado Court of Appeals on July 25, 2019 that “squarely reject[s] the proposition that contracting parties, by inclusion of language in a contract, may compel a court to blue pencil an agreement that violates the public policy of this state.”

In 23 LTD v. Herman, ____ P.3d ____, 2019 WL 3330823 (Colo. App. July 25, 2019), the Court examined restrictive covenants between a legal recruiter and its former employee, Tracy Herman. A noncompetition provision prohibited Ms. Herman from competing with her former employer for 12 months after her termination within 30 miles of the recruiter’s principal place of business, and a nonsolicitation provision prohibited Ms. Herman from contacting or soliciting “the business of any person, entity, applicant, client, employer or prospective employer who [the recruiting company] has contacted or solicited during the twelve (12) months prior to [Ms. Herman’s] termination.”

When the recruiting company refused Ms. Herman’s request to limit the noncompetition agreement from 30 to 28 miles as a result of the location of her home, she set up a competing business using a mailbox at a UPS store outside the 30-mile radius. When Ms. Herman placed a candidate she had allegedly worked with at her former employer, the recruiting agency sued Ms. Herman.

On summary judgment, the district court found that the nonsolicitation provision effectively prohibited Ms. Herman from competing at all in the Denver metro area for a year and that the overbreadth of the nonsolicitation provision rendered the noncompete superfluous. As a result, both provisions were found to be void in violation of Colorado law. Appeals and a trial on the merits followed in what is a lengthy court history examining, in large part, whether Colorado courts are required to revise overly broad noncompetition provisions.

When the case reached the Colorado Court of Appeals for a second time last week, the Court reiterated its positions that noncompetition agreements are contrary to the public policy of Colorado and that nonsolicitation provisions are a form of non-compete. The legal recruiter argued that the lower court was required to “blue-pencil” or revise the agreement as a result of a severability provision in the agreement (which included a statement that a court should determine reasonable time and geographic scopes if called upon to do so) and that it was an abuse of discretion for the lower court to refuse to revise the agreement. The Court responded:

  • Simply put, the court is not a party to the agreement, and the parties have no power or authority to enlist the court as their agent. Thus, parties to an employment or noncompete agreement cannot contractually obligate a court to blue pencil noncompete provisions that it determines are unreasonable.

The Court went on to state that it is the “obligation of a party who has, and wishes to protect, trade secrets to craft contractual provisions that do so without violating the important public policies of this state.”

While the Herman case does not state that provisions in a noncompete agreement asking a court to revise the agreement should be removed, it does make clear that a court is not bound by such provisions.

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