A noncompetition agreement in the employment context is a contract under which the employee agrees not to compete against the employer for a specified period, usually within a specified geographic area. Although a noncompetition agreement can be a separate agreement, non-competition clauses are often part of a broader employment contract. The use of the term “noncompetition agreement(s)” in this article covers both forms.
This article concerns the use of non-competition clauses in the employment context. In such an agreement, the employee agrees not to compete against the employer for a specified period, often within a specified geographic area. From an employer perspective, the agreement can be a useful tool to prevent an employee from copying the same business model within the relevant market, or from appropriating existing customers from the employer in a business that competes with the employer. From the employee perspective, a noncompetition agreement can often unreasonably restrict the employee’s ability to seek new employment and make a living in the field in which he or she has been trained or had experience.
B. Significant Changes in Oregon Law
At the end of its 2007 legislative session, the Oregon legislature passed a bill containing some drastic changes to Oregon law regarding non-competition and arbitration agreements between employers and employees. The new law only applies to agreements entered after January 1, 2008.
First, the non-competition agreement will not be enforceable unless the fact that a non-competition agreement was communicated in a written offer to the employee at least 2 weeks before the first day of employment, or it was entered into upon a bona-fide advancement. Second, the employee must be of a type described in ORS 653.020 (3), which in general is an administrative, executive or professional person who has discretion and exercises independent judgment, primarily is engaged in management, intellectual or creative tasks and is paid on a salary basis. Additionally, the employer must have a protectable interest. The statutory definition of such an interest includes such items as employee access to trade secrets, or other competitively sensitive confidential business information that may not qualify as trade secrets. Additionally, the employee must be salaried, and there is a minimum salary requirement, which generally must be at least the median family income for a 4-person family according to the U.S. Census Bureau. Accordingly, many employees cannot be subject to noncompetition agreements, either because they do not fit within the recognized classifications of employees, or because they do not earn enough in salary.
The foregoing is only a summary of some of the features of the new law.
C. The Agreement Must be Made Upon the Initial Employment, or Upon Subsequent Bona-Fide Advancement, if Entered Prior to January 1, 2008
A non-competition agreement in Oregon between an employee and his or her employer (entered into prior to January 1, 2008) is only valid if it was entered into at the beginning of employment, or it was entered into upon a promotion to a new position (which must be a bona fide advancement). Specifically, the current Oregon law states at ORS 653.285 that:
A noncompetition agreement entered into between an employer and employee is void and shall not be enforced by any court in this state unless the agreement is entered into upon the:
- Initial employment of the employee with employer; or
- Subsequent bona fide advancement of the employee with the employer.
Note that this discussion only applies to agreements entered into before January 1, 2008.
Accordingly, employer/employee noncompetition agreements are void and of no effect unless they are entered into at the beginning of employment or upon bona fide advancement.
D. There Must be a Protectable Interest
Case law has made it clear that the Employer must have a protectable interest in order to enforce a non-competition agreement. The case law analysis of protectable interests is not entirely uniform, and can be fairly complex as it is done on a case-by-case basis. However, valuable customer lists and trade secret information are two items that regularly tend to be claimed as protectable interests.