Colorado has taken another significant step in reshaping the landscape of employment restrictive covenants with the passage of Senate Bill 25-083, which significantly changes noncompete and nonsolicit agreements for healthcare professionals and protects minority stakeholders in business transactions. SB 25-083 is not retroactive and will apply only to agreements entered into or renewed on or after August 6, 2025.
Key Changes to Colorado's Restrictive Covenant Law
SB 25-083 amends Colorado Revised Statutes § 8-2-113, marking a focused reform in two areas:
1. Healthcare Professional Protections
The law largely eliminates restrictive covenants for healthcare professionals (as opposed to only physicians). Healthcare employers should review existing agreements and consider other means to protect their business interests, like confidentiality agreements.
2. Enhanced Protections for Minority Business Owners in Sale Transactions
The law establishes strict conditions for enforcing noncompete agreements against minority owners (those with less than 50% ownership) if the restrictive covenant "related to the purchase and sale of a business, a direct or indirect ownership share in the business, or all or substantially all assets of a business."
For minority shareholders who received their ownership as equity compensation "or otherwise in connection with services rendered," a new formula determines the permissive duration of the restricted covenant.
The maximum duration is capped using the following formula: total consideration received divided by the average annual cash compensation from the business (including ownership income) "during the preceding two years or during the time the individual was affiliated with the business, whichever period is shorter."
For example, if a minority owner received $50,000 from the sale of their ownership share and earned an average of $100,000 per year in salary and ownership income, the allowable noncompete duration would be $50,000 divided by $100,000, or 0.5 years (six months).
Looking Ahead
Organizations should use the time between now and the effective date to conduct comprehensive audits of their current restrictive covenant practices and develop compliant alternatives for future use.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
