Prove it or lose it (and pay): Colorado court requires employers to show bona fide trade secrets to save non-competes

Saying a non-compete protects trade secrets is not enough in Colorado. In Huset v. EIS Ultimate Holding, LP, --- P.3d ---, 2026 COA 81 (Colo. App. 2026), the Colorado Court of Appeals held that employers must prove they have bona fide trade secrets. It also held that employers who cannot do so, but try to enforce the covenant anyway, face penalties under Colorado’s non-compete statues, as amended in 2022, even if the covenant was signed before 2022. This is an important decision for companies whose employees signed non-competes before the 2022 statutory amendments took effect because it knocks out certain arguments that the newer penalty provisions do not apply.

I. Background

The plaintiff worked for Earth Services & Abatement, LLC (ESA), an environmental remediation company, from 2009 to 2023. While at ESA, he signed an incentive unit grant agreement containing confidentiality, trade secret, and non-compete provisions. The non-compete barred him for two years, nationwide, from competitive work that would require him to use trade secrets.  After he left to join Impact, a trucking brokerage, he co-founded, ESA and its parent entities (EIS) sent three demand letters, and the plaintiff and Impact sued for a declaration that the covenants were void and for damages, prejudgment interest, penalties, and attorney fees and costs under C.R.S. § 8-2-113(8)(b).

II. The decision

Effective August 10, 2022, section 8-2-113(2)(b) exempts a non-compete that is “for the protection of trade secrets” and “no broader than is reasonably necessary” to protect them, if the worker meets a compensation threshold. Relying on two preliminary-injunction decisions, the defendants argued that intent alone counts whether or not any trade secrets exist. The court disagreed. Those cases asked only, at the injunction stage, whether the movant had a reasonable probability of success. At trial on the merits, the court must decide, by a preponderance of the evidence, “whether the employer actually has one or more bona fide trade secrets.” And the defendants, who “gambled” on arguing the wrong standard at trial, got no “do-over” at the Court of Appeals.

Two questions follow. First, what did ESA claim as trade secrets? It pointed to generic descriptions of supposed proprietary software and documents, lists of prequalified vendors, a customer list of people invited to its annual holiday party, and techniques such as a 40,000-psi power washer system. The trial court found none proved to be a bona fide trade secret, and the defendants did not challenge that finding as clearly erroneous on appeal.

Second, why does that matter for a non-compete signed before the 2022 amendments? The plaintiff signed his agreement in March 2022, but the penalty provisions in section 8-2-113(8) took effect on August 10, 2022, and H.B. 22-1317 states that it applies to covenants “entered into or renewed on or after” that date. The defendants argued that the penalties therefore did not reach them. The court disagreed, and the trade secret finding drove its analysis. Even before 2022, the trade secrets exception applied only if the non-compete’s purpose was to protect trade secrets and it was reasonably limited in scope to protecting them. Because the defendants proved no trade secrets, the covenants were void under both the pre-2022 and current versions of the statutes. The court held that the 2022 amendment “simply increases the available remedies for the attempted enforcement of an offending restrictive covenant,” which is not a prohibited retroactive result. And subsection (8)(a)’s ban on attempts to “enforce any covenant that is void under this section” addresses future conduct, so it applies “regardless of when the covenant was entered into.”

That failure also defeated the defendant’s bid to reduce the penalty based on good faith. The court affirmed the finding that the defendants sought to enforce a nationwide covenant “based on trade secrets that do [not] exist.” The court concluded that ESA knew it had none because it did not require essential employees with actual access to the purported secrets to sign similar non-compete agreements. The result: a $5,000 statutory penalty plus plaintiff’s attorney fees and costs, at trial and on appeal.

III. Takeaways for employers

Prove it. A non-compete that purports to protect trade secrets will not satisfy the exception on the merits without evidence proving protectable trade secrets exist. Before taking an adversarial position or filing suit, companies should do the diligence to identify and document their trade secrets and be prepared to prove them up as valid and enforceable.

Older covenants may not be safe harbors. If a pre-August 10, 2022, non-compete lacks bona fide trade secrets to protect and are reasonable in scope, it is likely void under the prior statute too, and attempting to enforce it now may trigger the 2022 penalties and fee-shifting. 

Be consistent. Inconsistent deployment of non-compete covenants may be used as evidence that no trade secrets exist. Companies should give measured thought to which employee populations have access to trade secrets and use non-competes only for those whose knowledge of them presents a competitive risk if and when they leave the company.

Reed Smith will continue to monitor developments, including any petition for rehearing or for certiorari to the Colorado Supreme Court.