Colorado Court of Appeals Extends Noncompete Penalties to Older Agreements

Employers attempting to enforce void noncompete agreements signed years ago may now face significant financial penalties, according to a recent ruling from the Colorado Court of Appeals.

In the decision Huset v. EIS Ultimate Holding, LP, issued on November 5, 2026, the court determined that certain remedy provisions in the state’s noncompete statute apply even to covenants entered into before the current enforcement rules took effect on August 10, 2022. This interpretation increases the legal risks for companies that rely on legacy restrictive covenants to prevent employee mobility.

The ruling, as reported by Littler, clarifies that while the 2022 amendments to Colorado Revised Statutes primarily govern agreements made after August 10, 2022, the specific penalties for attempting to enforce a void covenant apply to older contracts as well. Under Colo. Rev. Stat. § 8-2-113(8), an employer who tries to enforce a void noncompete can be held liable for a $5,000 penalty, along with actual damages, court costs, and attorneys’ fees.

The Huset dispute

The case centered on a dispute between a former employee and Earth Services & Abatement, LLC, a company providing demolition and soil remediation services. In March 2022, the plaintiff signed an agreement with the company’s parent entity that included a two-year, nationwide noncompete provision allegedly designed to protect trade secrets.

After the employee resigned in May 2023 to start a trucking brokerage, the company issued three demand letters stating its intent to enforce the restrictive covenants. The employee responded by suing for a declaratory judgment that the covenants were void. While the company attempted to argue that its subsequent promise not to enforce the agreement rendered the lawsuit moot, the court of appeals disagreed.

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The court found that the employee’s claim for relief remained active because the company’s disavowal did not include a commitment to pay the statutory fees, costs, or penalties the employee was seeking.

The court also rejected the company's argument that it had acted in good faith, noting that the company continued to pursue litigation in federal court and arbitration even after it became clear the covenants lacked a basis in protectable trade secrets.

Defining trade secret protection

A critical component of the ruling involves the evidentiary burden placed on employers. To use a noncompete for the “protection of trade secrets,” the court clarified that an employer cannot simply claim such protections exist; they must prove it.

The court distinguished between the standards used for preliminary injunctions and those used during the merits stage of a trial. While an employer might obtain temporary relief by showing a covenant is intended to protect trade secrets, the merits stage requires the employer to prove by a preponderance of the evidence that “any bona fide trade secrets actually exist.”

In this specific instance, the trial court found that the plaintiff’s new business did not compete with the former employer and that the company failed to prove it owned any legitimate trade secrets. The court of appeals affirmed this finding, reinforcing that the mere existence of a confidentiality clause is insufficient to justify a noncompete if no actual trade secrets are at risk.

Shifting risks for Colorado employers

The decision means older employment contracts no longer protect companies seeking to restrict former staff. By extending the $5,000 penalty and fee-shifting provisions to the enforcement of pre-2022 agreements, the court has increased the economic stakes of aggressive litigation.

The ruling also addresses the “choice-of-law” aspect of the statute. The court of appeals suggested that the protections in § 8-2-113 apply to any noncompete if the employee is a Colorado resident at the time their employment is terminated, regardless of when the original agreement was signed.

For businesses operating in the state, the decision suggests a need to audit existing employment contracts. Relying on outdated noncompete language that lacks specific, provable trade secrets could now result in direct statutory penalties and the responsibility to cover an employee’s legal expenses.

“The court of appeals held, however, that § 8-2-113(8) applies to enforcement of covenants not to compete that were void under the version of the statute in effect when the covenant was signed,” Littler reported regarding the scope of the ruling.

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