In the recently adjourned legislative session, Colorado lawmakers passed substantial changes to the state’s noncompete law. SB 83, if enacted, is poised to have a significant impact on the state’s health care industry and could alter how restrictive covenants are negotiated in M&A transactions.
In 2022, the Colorado General Assembly overhauled the Colorado noncompete statute. As a result of those changes, restrictive covenants (like noncompete, non-solicitation, no-business and non-recruitment) remain disfavored in Colorado, with some statutory exceptions (including for higher earners, to protect trade secrets, and with the provision of a requisite notice). Restrictive covenants specific to physicians were left untouched by the previous law, as well as those negotiated in connection with the purchase or sale of a business or its assets.
Impacts on the Health Care Employers
SB 83 expressly prohibits non-compete agreements for all physicians, advanced practice registered nurses, dentists and certified midwives for the protection of a business’ trade secrets. Previously, these types of restrictive covenants against physicians could be enforced through liquidated damages provisions, but this bill removes that exception entirely. This means that health care employers cannot prevent any of these health care professionals from working for competitors after leaving their current employment if engaging in the practice of medicine (including practicing as a physician assistant), registered nursing or dentistry (but, curiously, not the practice of midwifery).
SB 83 also excludes healthcare providers from the exemption that allows reasonable non-solicitation agreements with workers making at least 60% of the threshold amount for highly compensated workers for the purpose of protecting a business’ trade secrets. This means that physicians, nurses, dentists and certified midwives also cannot be restricted from informing their patients about their new practice location or their continued availability for care.
And finally, the law makes sure that health care workers can tell their patients where they are working next, so patients can keep seeing them if they want. The legislation specifies that a restrictive covenant is barred if it “prohibits or materially restricts” a departing health care provider’s ability to disclose to current patients that they are continuing to practice, their new contact information and the patients’ right to choose their medical providers. The Colorado attorney general would have authority to enforce this particular provision.
Impact on Buying and Selling a Business or Its Assets
The existing version of the noncompete statute contains a blanket exception for any covenant for the purchase and sale of a business or the assets of a business, which is a carveout found in virtually all noncompete statutes in the United States. The amendment would limit this carveout to only allow noncompete restrictions over business owners related to the purchase and sale of their business, a direct or indirect ownership share in their business, or all or substantially all of the assets of their business. Importantly, the legislature did not explicitly call out health care providers as being excluded from this carveout, meaning that restrictive covenants over health care providers are likely still valid under this particular set of circumstances.
For minority owners selling their stake in a business and who received their interest as sweat equity, the duration of any noncompete must be proportional to the minority owner’s compensation and tenure, using a formula based on total consideration received divided by their average annual compensation. This means that long-term noncompete restrictions will not be enforceable unless they align with this formula.
Next Steps for Colorado Employers
The bill is awaiting signature by the governor, who has until June 6 to sign the bill, and will take effect on Aug. 6, 2025. The Colorado Department of Labor and Employment would then update existing rules and guidance to conform with the bill, so ongoing monitoring is essential. Employers, particularly in the health care industry, should review existing employment agreements to ensure compliance with the new regulations and revise them before Aug. 6. The new law would only apply to covenants not to compete entered into or renewed on the effective date.
Colorado companies heading to market and investors should also be mindful of the Aug. 6 date. A buyer’s failure to pay heed to the changes to the statute could lead to post-transaction surprises. Reach out to one of the authors or your regular Brownstein counsel for specific questions.
This document is intended to provide you with general information regarding SB 83 in Colorado. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.