New Legislation is a Blow to Oregon Employers Relying on Noncompetition Agreements

Tonkon Torp LLP

Tonkon Torp LLP

In their most recent session, the Oregon Legislature passed, and Gov. Kate Brown signed into law, Senate Bill 169 (SB 169) – a bill which continues to erode the protections of noncompetition agreements for employers.

Noncompetition agreements prohibit employees, for a period of time after employment with a specific employer ends, from engaging in activity which would compete with the former employer, whether that be working for a competitor or going into business directly competing with the former employer.

Years ago, the law regarding such agreements was known as “common law,” meaning it was based on case decisions by courts. However, in 1977, the Oregon Legislature enacted the first statute impacting noncompetition agreements. Since that time, the legislature has passed numerous bills which have generally narrowed the scope of enforceable noncompetition agreements. This has included placing procedural requirements on what an employer must do to have an enforceable noncompetition agreement, limiting the scope of enforceable noncompetition agreements, particularly from a duration perspective, and placing limits on which employees can be bound by noncompetition agreements.

Employers who want an enforceable noncompetition agreement are required to inform prospective employees in writing 14 or more days in advance of starting employment that the employment will be covered by a noncompetition agreement – or the agreement will have to be entered into on a subsequent bona fide advancement in employment. Employers have to demonstrate a protectable interest and employees signing noncompetition agreements have to essentially be exempt employees.

Prior to SB 169, these employees needed to be paid more than the median income for a family of four. Further, upon termination of employment, employers had to provide employees with a copy of the noncompetition agreement within 30 days. If these conditions were not met, then the noncompetition agreement was “voidable” – if employees repudiated the agreement before their employer tried to enforce it, the agreement would not be enforceable. This last procedural step required of the employee was a nuance that many, if not most, failed to act upon. Noncompetition agreements could only be enforced for 18 months post-employment.

SB 169 further restricts the scope of enforceable noncompetition agreements. The first change the law makes is that noncompliant noncompetition agreements are “void,” and not just “voidable.” This means the affected employee does not have to take action prior to the former employer’s efforts to enforce the noncompetition agreement in order to have the noncompetition agreement declared unenforceable. Further, the law shortens the permitted noncompetition period from 18 months to one year. (Agreements entered into before this newest law will still be enforceable for the longer period of time.)

Lastly, the law now makes explicit the amount of money an affected employee must make in order to be bound by noncompetition agreement – the legislature set that amount at $100,533 per year (adjusted annually).

While noncompetition agreements will continue, even in light of these changes, to play an important role, employers do have other means at their disposal to protect business interests. These include nondisclosure agreements (which prohibit employees from disclosing or using confidential proprietary information), so-called “inventions” agreements (which place ownership of developments by an employee with the employer), and non-solicitation agreements (which can prohibit employees from soliciting customers or employees of the employer for a period of time post-employment). Employers should consider using any or all of these means to better protect their business interests.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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