Non-Compete Agreement Ancillary to Sale of Business Must Be Reasonable. The trial court concluded that because the parties executed the non-compete agreement in connection with the sale and purchase of a business, the agreement was a permitted exception to Colorado’s statutory bar on covenants not to compete. In addition, the trial court found that Xxxxxx, at the time of his departure from the buyer, was not an executive or management employee, and therefore the executive and management personnel exception did not apply (a rationale seemingly at odds with Xxxxxxx, since it directs the inquiry of the employee’s responsibilities to the time of termination, not to when the covenant was executed). Finally, the trial court found no valid reason why Xxxxxx, “a mere employee” and an owner of only a small percentage of the business, should be prohibited from competing with Xxxx Mill in 2002, six years after the closing date. Reed Mill appealed, arguing that although Xxxxxx’x non-compete agreement was made in connection with the purchase agreement, the trial court erred when it concluded that the duration of the agreement was unreasonable. Reed Mill asserted that it was reasonable to begin the three-year non-competition period upon termination of Xxxxxx’x employment “because Xxxxxx possessed good will at the time of the sale and maintained that good will during his employment with the new company.” The Court of Appeals disagreed with Reed Mill, and affirmed the trial court's decision that Reed Mill could not enforce the three-year noncompetition agreement because it was unreasonable. Even though Xxxxxx executed the non-compete agreement in conjunction with the sale of the business, the agreement must still be reasonable with respect to time, scope and geographic limitation. The Court noted that Reed Mill enjoyed the protection of its purchased good will during the three years immediately following the sale of the business because Xxxxxx did not compete with Xxxx Mill. Indeed, Xxxxxx remained employed with Reed Mill for six years and assisted the company in its efforts to convert that good will to its own, including preserving the patronage of past customers. Therefore, the Court rejected Reed Mill’s argument that the rational for commencing the term of the non-compete upon Xxxxxx’x termination was to provide the company time to convert the former company’s good will into its own. As a result, the Court of Appeals adopted the trial court’s ruling and determined that Xxxxxx’x non-compete agreement executed in connection with the sale of ...
