Colorado Enacts New Limits on Restrictive Covenants

By Eric L. Kintner, Bill Ojile, Jordyn L. McDowell, and Ainsley Hill¹

Effective August 6, 2025, SB25-083 will void non-competition and non-solicitation of customer provisions entered into or renewed by doctors, nurses, midwives, and dentists on or after this effective date. Employers who violate these rules face civil and criminal penalties. Notably, the law also limits the ability to enforce non-compete agreements in connection with the sale of a business entered into after this effective date against employees of a business subject to a sale who hold equity solely as a form of compensation, unless they meet specific ownership thresholds or receive separate consideration.

SB25-083 contains a few provisions that protect employers in the medical field. First, a confidentiality or trade secret provision is permissible so long as it does not prohibit the disclosure of information that arises from the healthcare provider’s general training, knowledge, skill, or experience, information that is readily ascertainable to the public, or information that the healthcare provider otherwise has a right to disclose. Second, the legislation states that provisions of employment or other agreements that do not include an “unlawful restrictive covenant” remain enforceable and subject to any damages or equitable remedy.

SB25-083 clarifies and narrows the traditional “sale-of-business” exception to the treatment of non-compete restrictions that arise in connection with the sale of a business, a direct or indirect ownership interest in a business, or substantially all of the assets of a business. This provision will apply to all non-compete restrictions, not just those that apply to healthcare providers.

The prior version of C.R.S. § 8-2-113(3)(c) referenced a “covenant for the purchase and sale of a business or the assets of a business.” SB25-083 expressly encompasses covenants “related to the purchase and sale of a business, a direct or indirect ownership share in a business, or all or substantially all of the assets of a business.” By adding “direct or indirect ownership share,” SB25-083 eliminates any ambiguity over whether multi-layered ownership structures, such as holding company arrangements, qualify for the “sale-of-business” exception.

Previously under C.R.S. § 8-2-113(3)(c), any equity holder selling his, her, or its interest could be bound by a non-compete provision, which typically have a duration of up to five years from the closing date of the transaction. For the first time, Colorado imposes an express temporal limit on a non-compete provision enforceable against a minority owner of the business who received such ownership in the business as equity compensation or otherwise in connection with services rendered by the minority owner. Under SB25-083, the permissible duration for a sale‑of‑business non‑compete for a minority owner who only received equity as compensation is capped using the formula:

Maximum Duration (Years) = (Total Consideration from Sale) divided by (Average Annual Cash Compensation)

For example, for a minority owner who only received equity as compensation and who received average annual cash compensation in the prior two years equal to $200,000 and who would be set to receive $500,000 in total consideration in connection with the sale transaction, the employee’s non-compete duration would be capped at 2.5 years.

Employers who are concerned about SB25-083 should seek legal counsel to ensure that any new or renewed non-compete or non-solicitation of customer agreements with healthcare providers or entered into in connection with a sale of business are compliant by August 6, 2025.