Juan Obregon
By Juan Obregon
Question: Can we require an employee to sign a noncompete agreement before they receive their final paycheck?
Answer: In short: no, employers cannot withhold an employee’s final paycheck until they sign a non-compete. Doing so likely violates Colorado’s restrictive covenant statute (Colo. Rev. Stat. 8-2-113) and the Colorado Wage Claim Act (Colo. Rev. Stat. 8-4-101, et seq).
Under Section 8-4-109 of the Colorado Wage Claim Act, when the employer terminates an employee, “wages or compensation for labor or service earned, vested, determinable, and unpaid at the time of such discharge is due and payable immediately.” When an employee quits “the wages or compensation shall become due and payable upon the next regular payday.” Either way, if the employee performed the labor to earn those wages, they are due and failing to pay it timely could subject the employer to significant penalties.
Additionally, requiring an employee to sign a non-compete to receive their final paycheck also likely violates Colorado’s restrictive covenant statute for multiple reasons (which could also subject the employer to penalties). Colorado’s restrictive covenant statute governs non-compete agreements, and the statute voids most non-competes except for limited exceptions. The law gives Colorado courts discretion to issue penalties up to $5,000.00 per worker for attempting to procure invalid agreements.
Assuming the employer meets the limited and narrow exceptions in the statute and has a valid reason to impose a non-compete, the employer must still abide by the statute’s notice and consideration requirements. The notice must be provided at least 14 days before the earlier of: (a) the effective date of the covenant; or (b) the effective date of any additional compensation or change in the terms/conditions of employment that provides consideration for the restrictive covenant.
Even if notice is provided timely, the employee must be provided valid consideration—which can be either continued employment or additional compensation. In this instance, because the employee is leaving the company, then they must be provided additional compensation to be subject to a non-compete. Their final paycheck is already earned and due, and thus would not count as additional compensation.
