In prior years, many employers with multistate operations would create a single set of post-employment restrictive covenants for employees in all locations. They reasoned that if those restrictions ended up being declared invalid in one state, the worst that could happen would be that they were deemed unenforceable. Some employers may have also believed that those covenants could have a deterrent effect that would prevent employees from realizing that they were not legally bound by the restrictions. 

State legislatures have begun to catch up to this practice, adopting legislation that imposes penalties on employers that attempt to use noncompetition, non-solicitation, or other restrictions prohibited under those states' laws. While many employers point to a 2024 California law applying monetary sanctions, Maine was the first state to explicitly create a cause of action for illegal noncompetes in 2019. In the intervening years, a number of other states including Virginia, Washington, Nevada, and the District of Columbia joined this trend.

Last week, a Colorado appellate court upheld an award of damages against an employer that sought to enforce a noncompete signed before a 2022 law narrowed the use of restrictive covenants in that state. The court held that the law applied regardless of when the noncompete was entered into, and affirmed an award of actual damages, plus a $5,000 per employee penalty against the employer who tried to restrict a former employee from certain subsequent work.

These developments make clear the need for employers to carefully review the laws of states where employees work before asking them to sign post-employment restrictions. In addition to invalidating agreements not compliant with those states' laws, simply putting the void agreement in front of the employee can result in exposure to serious liabilities.

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