In a June 12, 2009 decision, Haggard v. Spine, Judge Arguello of the federal district court in Colorado ruled that Colorado law should be applied to determine the enforceability of a non-compete despite the parties’ agreement that Pennsylvania law should govern.
Consistent with Colorado’s choice-of-law rules, Judge Arguello concluded that the law chosen by the parties would be applied unless application of the chosen law would be contrary to a “fundamental policy” of a state with a materially greater interest. In Haggard, Judge Arguello found that Colorado had a materially greater interest in the dispute because the employee lived and worked in Colorado and the “threatened employment” would also be in Colorado. In addition, the employer had a large facility in Colorado and the employee signed the employment agreement in Colorado. Judge Arguello also found that there were sufficient differences in Colorado and Pennsylvania law that would make application of Pennsylvania law contrary to Colorado’s policy on non-competes.
Choice-of-law provisions in non-competes have received considerable attention from Colorado courts in the last several years. Employers often include choice-of -law provisions in their employment agreements, either because they want all employees to be bound alike or because they believe that a specific state’s law provides them with an advantage.
There have been decisions in which these choice of law provisions have been enforced. More frequently, however, Colordo courts have elected to apply Colorado law to determine the enforceability of a non-compete. These decisions rest on a factual inquiry performed by the Court. If a case involves facts that relate exclusively to Colorado, Haggard suggests that another state’s law will not be applied.
The rest of Judge Arguello’s decision is anticlimatic. Among other things, Judge Arguello found, under the evidence presented, that the non-compete was necessary for the protection of trade secrets. As a result, Judge Arguello issued a preliminary injunction barring the employee from violating the non-compete.