When a business sells, existing contracts, including non-compete agreements, may change. Buyers and sellers should understand how these agreements apply and whether they remain valid after a sale. Colorado law specifically governs the enforceability of non-compete clauses in business transactions.
Are non-compete agreements still valid after a sale?
In many cases, non-compete agreements remain in effect after a business sale, but enforceability depends on the agreement’s terms and state law. Colorado law generally disfavors non-compete agreements, but it allows exceptions for business sales. If a seller agrees not to compete with the buyer, courts often uphold the agreement as long as it remains reasonable in scope, duration, and geographic limitation.
What happens to employee non-compete agreements?
When a business changes ownership, employee non-compete agreements do not automatically transfer to the new owner. If the agreement exists between the employee and the original employer, the buyer may need employees to sign new agreements. Courts may reject enforcement of a non-compete if the change in ownership alters the employment relationship. Employers should specify assignability in contracts to avoid disputes.
How can buyers and sellers protect their interests?
Sellers should review non-compete clauses before finalizing a sale to comply with Colorado law. Buyers should verify that existing agreements hold legal weight and determine whether new agreements are necessary. Negotiating fair terms helps prevent future legal challenges and protects business interests.
Understanding Colorado law on non-compete agreements
Colorado law restricts non-compete agreements but permits them in business sales under certain conditions. The agreement must limit time and geographic scope to remain enforceable. Courts reject overly broad restrictions that prevent individuals from earning a living.
