Senate Bill 25-083 Engrossed

A Bill for an Act

• Page 1, Line 101Concerning limitations on restrictive employment

• Page 1, Line 102agreements.

Bill Summary

(Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov.)

Under current law, there is an exemption from the general prohibition against covenants not to compete. The exemption allows for a covenant not to compete under specified conditions governing an individual who earns an amount of annualized cash compensation equivalent to or greater than the threshold amount for highly compensated workers. The bill excludes from the highly compensated worker exemption a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry in this state.

Under current law, there is also an exemption from the general prohibition against covenants not to solicit customers (nonsolicitation covenant) that allows for a nonsolicitation covenant governing an individual who earns an amount of annualized cash compensation equivalent to or greater than 60% of the threshold amount for highly compensated workers if the nonsolicitation covenant is no broader than reasonably necessary to protect the employer's legitimate interest in protecting trade secrets. The bill also excludes from the highly compensated worker exemption for nonsolicitation covenants a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry.

A covenant not to compete governing an individual who has a minority ownership share of a business and who received their ownership share in the business as equity compensation or otherwise in connection with services rendered is permissible if the covenant's duration in years does not exceed a number calculated by the total consideration received by the individual from the sale divided by the average annualized cash compensation received by the individual from the business, including income received on account of the individual's ownership interest during the preceding 2 years or during the period of time that the individual was affiliated with the business, whichever period of time is shorter.

The bill prohibits a covenant that prevents or materially restricts a health-care provider from disclosing to a patient to whom the health-care provider was providing consultation or treatment before the health-care provider's departure from a medical practice the following information:

• The health-care provider's continuing practice of medicine;
• The health-care provider's new professional contact information; or
• The patient's right to choose a medical provider.

• Page 2, Line 1Be it enacted by the General Assembly of the State of Colorado:

• Page 2, Line 2SECTION 1.  In Colorado Revised Statutes, 8-2-113, amend

• Page 2, Line 3(2)(a), (2)(b), (2)(c) introductory portion, (2)(c)(I), (2)(d), (3)(b), (3)(c),

• Page 2, Line 4(5), and (9)(a); and add (2)(c)(I.3), (2)(c)(I.4), (2)(c)(I.5), (2)(c)(I.6), (2)(c)(I.7), (3)(e), and (5.5) as follows:

• Page 3, Line 18-2-113.  Unlawful to intimidate worker - agreement not to

• Page 3, Line 2compete - prohibition - exceptions - notice - rules - definitions.

• Page 3, Line 3(2) (a)  Except as provided in subsections (2)(b), (2)(d), and (3) of this

• Page 3, Line 4section, any a covenant not to compete that restricts the right of any

• Page 3, Line 5person an individual to receive compensation for performance of labor for any employer is void.

• Page 3, Line 6(b)  Except for a covenant not to compete that restricts

• Page 3, Line 7the practice of medicine, the practice of advanced practice

• Page 3, Line 8registered nursing, or the practice of dentistry in this state, this

• Page 3, Line 9subsection (2) does not apply to a covenant not to compete governing a

• Page 3, Line 10person an individual who, at the time the covenant not to compete is

• Page 3, Line 11entered into and at the time it is enforced, earns an amount of annualized

• Page 3, Line 12cash compensation equivalent to or greater than the threshold amount for

• Page 3, Line 13highly compensated workers, if the covenant not to compete is for the

• Page 3, Line 14protection of trade secrets and is no broader than is reasonably necessary to protect the employer's legitimate interest in protecting trade secrets.

• Page 3, Line 15(c)  As used in this subsection (2) section, unless the context otherwise requires:

• Page 3, Line 16(I)  "Annualized cash compensation" means:

• Page 3, Line 17(A)  The amount of the gross salary or wage amount, the fee

• Page 3, Line 18amount, or the other compensation amount for the full year, if the person individual was employed or engaged for a full year; or

• Page 3, Line 19(B)  The compensation that the person individual would have

• Page 3, Line 20earned, based on the worker's gross salary or wage amount, fee, or other compensation if the worker was not employed or engaged for a full year.

• Page 3, Line 21(I.3)  "Health-care provider" means an individual licensed

• Page 4, Line 1to engage in the practice of medicine, registered to engage in the

• Page 4, Line 2practice of advanced practice registered nursing, licensed to

• Page 4, Line 3practice as a certified midwife, or licensed to engage in the practice of dentistry.

• Page 4, Line 4(I.4)  "Practice as a certified midwife" has the meaning set forth in section 12-255-104 (7.5).

• Page 4, Line 5(I.5)  "Practice of advanced practice registered nursing" has the meaning set forth in section 12-255-104 (8).

• Page 4, Line 6(I.6)  "Practice of dentistry" has the same meaning as "dentistry" set forth in section 12-220-104 (6).

• Page 4, Line 7(I.7)  "Practice of medicine" has the meaning set forth in

• Page 4, Line 8section 12-240-107 (1) and includes practice as a physician assistant pursuant to section 12-240-113.

• Page 4, Line 9(d)  Except for a covenant not to compete that restricts

• Page 4, Line 10the practice of medicine, the practice of advanced practice

• Page 4, Line 11registered nursing, or the practice of dentistry in this state, this

• Page 4, Line 12subsection (2) does not apply to a covenant not to solicit customers

• Page 4, Line 13governing a person an individual who, at the time the covenant is

• Page 4, Line 14entered into and at the time it is enforced, earns an amount of annualized

• Page 4, Line 15cash compensation equivalent to or greater than sixty percent of the

• Page 4, Line 16threshold amount for highly compensated workers, if the nonsolicitation

• Page 4, Line 17covenant is no broader than reasonably necessary to protect the employer's legitimate interest in protecting trade secrets.

• Page 4, Line 18(3)  The following covenants are not prohibited by subsection (2) of this section:

• Page 4, Line 19(b)  A reasonable confidentiality provision or trade secret

• Page 4, Line 20provision relevant to the employer's business that does not prohibit

• Page 5, Line 1disclosure of information that arises from the worker's general training,

• Page 5, Line 2knowledge, skill, or experience, whether gained on the job or otherwise,

• Page 5, Line 3information that is readily ascertainable to the public, or information that a worker otherwise has a right to disclose as legally protected conduct;

• Page 5, Line 4(c)  A covenant for the purchase and sale of a business or the

• Page 5, Line 5assets of a business; or not to compete related to the purchase and

• Page 5, Line 6sale of a business, a direct or indirect ownership share in a

• Page 5, Line 7business, or all or substantially all of the assets of a business

• Page 5, Line 8that restricts competition by an owner of an interest in the

• Page 5, Line 9business. For an individual who owns a minority ownership share

• Page 5, Line 10of the business and who received their ownership share in the

• Page 5, Line 11business as equity compensation or otherwise in connection with

• Page 5, Line 12services rendered, the duration in years of a covenant not to

• Page 5, Line 13compete described in this subsection (3)(c) must not exceed a

• Page 5, Line 14number calculated by the total consideration received by the

• Page 5, Line 15individual from the sale divided by the average annualized cash

• Page 5, Line 16compensation received by the individual from the business,

• Page 5, Line 17including income received on account of their ownership

• Page 5, Line 18interest during the preceding two years or during the period of

• Page 5, Line 19time that the individual was affiliated with the business, whichever period of time is shorter.

• Page 5, Line 20(e)  A provision providing for an employer's recovery of:

• Page 5, Line 21(I)  Relocation expenses paid by the employer on behalf of

• Page 5, Line 22an individual. The employer's recovery is limited to the

• Page 5, Line 23reasonable costs of the relocation and must decrease over the

• Page 5, Line 24course of not more than three years subsequent to the

• Page 5, Line 25beginning of the individual's employment proportionately based

• Page 6, Line 1on the number of months that have passed since the beginning of the employment.

• Page 6, Line 2(II)  A signing bonus or other remuneration paid by the

• Page 6, Line 3employer to an individual to induce the individual to relocate

• Page 6, Line 4or, in the case of a health-care provider, to establish a

• Page 6, Line 5health-care practice in a specified geographic area. The

• Page 6, Line 6employer's recovery of the signing bonus or other remuneration

• Page 6, Line 7must decrease over the course of not more than three years

• Page 6, Line 8subsequent to the beginning of the individual's or health-care

• Page 6, Line 9provider's employment proportionately based on the number of

• Page 6, Line 10months that have passed since the beginning of the individual's or health-care provider's employment.

• Page 6, Line 11(III)  Recruiting expenses paid by the employer to recruit

• Page 6, Line 12a health-care provider. The employer's recovery of the

• Page 6, Line 13recruiting expenses must decrease over the course of not more

• Page 6, Line 14than three years subsequent to the beginning of the health-care

• Page 6, Line 15provider's employment proportionately based on the number of

• Page 6, Line 16months that have passed since the beginning of the health-care provider's employment.

• Page 6, Line 17(IV)  Marketing expenses paid by the employer to market

• Page 6, Line 18an individual health-care provider. The employer's recovery of

• Page 6, Line 19the marketing expenses must decrease over the course of not

• Page 6, Line 20more than three years subsequent to the beginning of the

• Page 6, Line 21individual's employment based on the number of months that have passed since the beginning of the individual's employment.

• Page 6, Line 22(5) (a)  Any covenant not to compete provision of an employment,

• Page 6, Line 23partnership, or corporate agreement between physicians that restricts the

• Page 7, Line 1right of a physician to practice medicine, as defined in section

• Page 7, Line 212-240-107, upon termination of the agreement, is void; except that all

• Page 7, Line 3other provisions of the agreement enforceable at law, including

• Page 7, Line 4provisions that require the payment of damages in an amount that is

• Page 7, Line 5reasonably related to the injury suffered by reason of termination of the

• Page 7, Line 6agreement, are enforceable. Provisions of a covenant not to compete that

• Page 7, Line 7require the payment of damages upon termination of the agreement may

• Page 7, Line 8include damages related to competition. A provision of an employment

• Page 7, Line 9agreement or any other agreement enforceable at law that

• Page 7, Line 10does not include an unlawful restrictive covenant remains

• Page 7, Line 11enforceable and subject to any damages or equitable remedy

• Page 7, Line 12otherwise available at law, including, but not limited to, liquidated damages.

• Page 7, Line 13(b)  Notwithstanding subsection (5)(a) of this section, after

• Page 7, Line 14termination of an agreement described in subsection (5)(a) of this section,

• Page 7, Line 15a physician may disclose his or her continuing practice of medicine and

• Page 7, Line 16new professional contact information to any patient with a rare disorder,

• Page 7, Line 17as defined in accordance with criteria developed by the National

• Page 7, Line 18Organization for Rare Disorders, Inc., or a successor organization, to

• Page 7, Line 19whom the physician was providing consultation or treatment before

• Page 7, Line 20termination of the agreement. Neither the physician nor the physician's

• Page 7, Line 21employer, if any, is liable to any party to the prior agreement for damages

• Page 7, Line 22alleged to have resulted from the disclosure or from the physician's treatment of the patient after termination of the prior agreement.

• Page 7, Line 23(5.5)  A covenant is deemed a covenant that restricts the

• Page 7, Line 24practice of medicine, the practice of advanced practice

• Page 7, Line 25registered nursing, or the practice of dentistry if it prohibits or

• Page 8, Line 1materially restricts a health-care provider from disclosing to

• Page 8, Line 2a patient to whom the health-care provider was providing

• Page 8, Line 3consultation or treatment before the health-care provider's

• Page 8, Line 4departure from a medical or dental practice the following information:

• Page 8, Line 5(a)  The health-care provider's continuing practice of medicine;

• Page 8, Line 6(b)  The health-care provider's new professional contact information; or

• Page 8, Line 7(c)  The patient's right to choose a health-care provider.

• Page 8, Line 8(9) (a)  The attorney general may enforce subsections (2), (3), (4), (5.5), (6), and (8)(a) of this section.

• Page 8, Line 9SECTION 2.  Act subject to petition - effective date -

• Page 8, Line 10applicability. (1)  This act takes effect at 12:01 a.m. on the day following

• Page 8, Line 11the expiration of the ninety-day period after final adjournment of the

• Page 8, Line 12general assembly; except that, if a referendum petition is filed pursuant

• Page 8, Line 13to section 1 (3) of article V of the state constitution against this act or an

• Page 8, Line 14item, section, or part of this act within such period, then the act, item,

• Page 8, Line 15section, or part will not take effect unless approved by the people at the

• Page 8, Line 16general election to be held in November 2026 and, in such case, will take

• Page 8, Line 17effect on the date of the official declaration of the vote thereon by the governor.

• Page 8, Line 18(2)  This act applies to covenants not to compete entered into or renewed on or after the applicable effective date of this act.