Oregon Noncompetition Agreements Recent Developments 2021

If you are an employee or small business with questions about an Oregon noncompete agreement, please feel free to contact me.  Email is generally the best means of initial contact; include only your telephone number and employer name (for our conflicts check) and I'll respond promptly to schedule a time to talk.  I can be reached at:  jim@employeelawyer.io 

Restrictive covenants, including noncompetition, nonsolicitation and nondisclosure agreements, are certainly among the more difficult and expensive issues confronting Oregon employees in recent years.  I have handled restrictive covenant matters in negotiation, arbitration, and litigation.  I have also been a co-presenter on "Noncompetition, Nonsolicitation, settlement and severance agreements" for the Fifth Annual Oregon State Bar Employment Boot Camp, a continuing legal education seminar.

NOTE:  The 2021 Oregon Legislature amended ORS 653.295 in several important respects, including limiting the maximum noncompetition period to 1 year (from 18 months), as well as changing the word "voidable" to "void" in terms of the consequences of an employer's imposition of a noncompetition agreement.  The new language states that a non-complying agreement is "void and may not be enforced by a court of this state."  The Legislature has also incorporated a clear baseline for the amount of salary/commissions an employee must earn to be subject to an noncompetition agreement (this figure, which will now be specified in the new law, is $100,533, calculated as of the date of termination).  However, all of these salutary improvements will apply only to new agreements executed after the effective date of the statute.  The new amendments were signed in to law on May 21, 2021, but they will be effective only as to agreements signed on or after January 1, 2022.   

In other words, while there have been some great, new amendments to Oregon noncompetition law, for many years to come Oregon employees, and Oregon employment law attorneys and the courts, will continue to deal with noncompetition agreements governed by pre-Jan. 1, 2022 law.  For information relevant to such agreements entered into on or before, December 31, 2021, please continue reading, as the discussion below remains relevant.  

1.  Preliminary Oregon Noncompete Considerations
Oregon noncompete litigation is expensive, time-consuming and distracting; and the employer will always be in a better position to absorb the cost of litigating.  From the employee perspective, litigation is to be avoided if at all possible.  I'm frequently called upon to provide consultations and negotiations concerning restrictive covenants, and, when contacted early enough, I've generally been successful in helping employees to avoid litigation.  Keep in mind, however, that restrictive covenant disputes can be emotionally charged; on one side the employer believes it is protecting hard work and innovation and on the other the employee feels as if the covenants are an unfair restriction on pursuing a livelihood.  There is merit to both perspectives.     

As an employee, you are well-advised to consult as early as possible with an Oregon noncompete attorney, preferably before ever signing your employment contract.  In almost every dispute over Oregon noncompetition agreements, your attorney will be paid on an hourly fee basis (these cases simply aren't amenable to contingency fee arrangements) and, as you might expect, these matters very quickly become expensive.  If your employment contract has an attorney fee-shifting provision, that is probably for the best as you can recover your attorney's fees if you prevail in litigation over your Oregon noncompete agreement; fee-shifting provisions are a double-edged sword, however and the employer can also recover fees from the employee if there is a fee-shifting provision and the employer successfully sues to enforce -- usually by seeking a temporary restraining order and preliminary/permanent injunctive relief against the employee, i.e. preventing the employee from working for a competitor or from competing by means of the employee's own business entity. 

Receiving legal advice early can go a long way toward avoiding litigation or otherwise fighting over the interpretation, applicability and enforceability of a noncompetition agreement. 

Unfortunately, there is not a significant body of precedent providing guidance on the application of Oregon's noncompete statute.  Several recent decisions from Oregon state and federal courts, however, have addressed certain aspects of the law, as does a 2019 legislative enactment which amended ORS 653.295 to require the employer to provide written, signed copies of noncompetition agreements to employees as a condition of enforceability.  

This article briefly addresses these court decisions and this legislation.  This article is not legal advice.  If you have questions concerning noncompetition, nonsolicitation or nondisclosure agreements, or other restrictive covenant or trade secret issues, I recommend you obtain a consultation with an Oregon employment attorney who is well-versed in this complex area of the law.  

2.  Voiding of Noncompetition Agreements -- when and how?
ORS 653.295 requires the employee to take steps to void a noncompetition agreement, even if the agreement plainly violates the statute, because the statute uses the term "voidable" and, of course, "voidable" is not the same as "void."  Therefore, even if the noncompetition agreement violates the statute, e.g. the employee was not given the requisite two weeks advance notice of the noncompete requirement as a condition of employment, the agreement could still be enforceable unless the employee had taken steps to void the noncompetition clause. 

Even some employment lawyers are unclear on the concept of voiding a contract.  That subject is discussed directly below.  The express text of ORS 653.295 as amended in 2007 means that opposing enforcement of Oregon noncompete provisions is an uphill battle for employees. 

Bernard v. S.B.

In 2015, in Bernard v. S.B., 270 OrApp 710 (2015), the Oregon Court of Appeals held that a prior employer was not liable for intentional interference with contractual relations for contacting the employee and her new employer to provide a reminder about the employee's contractual noncompete obligations.  The employee had worked for the prior employer trucking company in the logistics department, where the employee arguably had access to confidential customer and pricing information.  The employee voluntary resigned her employment and five days later went to work for a competitor.  After the prior employer contacted the employee and her new employer, the employee resigned her position with new employer.  The prior employer nonetheless again made contact seeking to enforce the noncompete provision and the employee sued.

The gist of the employee's claim was that the employer had wrongfully threatened to enforce an invalid noncompetition agreement and was therefore interfering with the employee's right to make a living.  The employee's claims included intentional interference with economic relations ("IIER"), misrepresentaion (fraud), and sought injunctive relief against enforcement of the noncompete.  While the employee established that there was a genuine issue of fact as to whether the noncompetition agreement was "voidable," because it was not provided to the employee two weeks in advance of employment, the Court of Appeals agreed with prior employer that, "in addition to failing to allege the facts necessary to prove that the noncompetition agreement was 'voidable' under the statute, plaintiff also failed to produce evidence that the agreement was, in fact, voided." 

The Court of Appeals noted that the Oregon legislature amended the statute in 2007, so that agreements which do not comply with the statute are "voidable" rather than "void."  As the Court of Appeals explained, "The change evidences a legislative intent . . . to treat noncompetition agreements -- even those that do not strictly comply with the new statutory requirements -- as presumptively valid rather than void ab initio."  In plain English, the employee now clearly has to take affirmative steps to void a contract containing an invalid, unlawful noncompetition provision.  The employee cannot wait until the employer seeks to enforce the agreement to object to the lawfulness of the noncompetition clause.   

Voiding a contract is not necessarily complex.  An employee can void a noncompete provision or have an Oregon noncompete attorney do so on the employee's behalf.  At a minimum, what is necessary is that written notice is provided to the employer clearly stating what provisions the employee is voiding and on what basis, i.e. specifying why the agreement or part of it does not comply with Oregon law. 

Brinton Business Ventures, Inc. v. Searle

A subsequent U.S. District Court of Oregon decision relied upon Bernard v. S.B. to hold that the employee had not voided the noncompetition agreement in a timely fashion.  In Brinton Business Ventures, Inc. v. Searle, Case No. 3:2016cv02279 (D.Or. 2017) , the U.S. District Court provided useful guidance in analzying issues pertaining to the timing and necessity of voiding Oregon noncompete agreements.  The Court first determined whether the relevant contract provision was voidable.  The Court determined that the party seeking to enforce the agreement, the plaintiff, Brinton Business Ventures, failed to establish that the agreement was not voidable (on the grounds that two week advance notice of the noncompetition agreement may or may not have been provided, which and was thus a disputed fact precluding summary judgment).  Assuming that the noncompetition provision was voidable, the Court turned to whether the defendant, Mr. Searle, had properly voided the provision.  While Mr. Searle pointed out that his attorney had sent a letter notice of voiding, the letter was sent after Brinton had already contacted Searle threatening to enforce the agreement. 

While the Brinton Court agreed that ORS 653.295 does not provide a specific deadline by which an employee must take steps to void a voidable Oregon noncompetition agreement, the Court held that it appears on the current state of the law that the employee must do so prior to the time the employer seeks to enforce the agreement:  "This strongly suggests that the Oregon Court of Appeals [in S.B. v. Bernard] interpreted ORS 653.295 to require a plaintiff to void a non-competition agreement prior to the defendant's effort to enforce the agreement."   

Because the U.S. District Court found that the employee did not void the noncompetition agreement in a timely fashion, the Court turned to whether the agreement was reasonable under Oregon law.  The Brinton Court explained that, in addition to meeting the statutory requirements, an Oregon noncompetition agreement:  "must meet three requirements in order to be enforceable:  '(1) it must be partial or restricted in its operation in respect either to time and place; (2) it must be on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public.'"  (citation omitted).  Ultimately, the U.S. District Court found that the geographic scope of the noncompete was overbroad and amended (or blue-penciled) the geographic scope and prohibited the employee from competing within 10 miles of any current customer rather than 30 miles as the agreement had originally provided.  The Court also reformed the nonsolicitation clause to provide that the employee could not be prevented from soliciting "prospective customers," but rather was only restricted from soliciting business from people who were actual customers of the employee's prior employer.  

The takeaway from these two cases, one in the Oregon Court of Appeals (which is the controlling intepretation as federal courts must generally follow state law on restrictive covenant matters) and one in the federal court, is that an employee must take steps to void a voidable Oregon noncompete agreement at the earliest opportunity, and, in most cases, before the employer seeks to enforce the agreement.  In addition, courts will be willing to reform, or blue pencil, Oregon noncompetition and nonsolicitation agreements.  This latter point cuts both ways; in some instances, it will be better for the employee if blue-penciling is not allowed, because in those instances the court may not enforce any aspect of the noncompete or nonsolicit, but other times the employee may benefit from reasonable reformation of the restrictive covenant. 

3.  The Salaried Exempt Employee Requirement
There are four requirements for a noncompetition agreement to be enforceable under Oregon law:
  • two weeks advance notice prior to the first day of employment;
  • the employer has a protectable interest;
  • the minimum employee income requirement; and 
  • the employee must be a salaried exempt employee.
The latter requirement means that the employee "is a person described in" ORS 653.020(3)(c), i.e. an employee who "Earns a salary and is paid on a salary basis."  This statutory subsection generally identifies what are commonly known as the white collar exemptions -- the managerial, administrative, and professional exemptions.  In some circumstances, an employee may appear to meet all the requirements for a white collar exemption, but will be compensated on a hybrid basis, e.g., part guaranteed salary and part commission, or on a fee basis or even on a highly-paid hourly basis.  I have seen several such contracts in the past two years, where employees may meet all the other requirements for exemption, but clearly are not paid on a true salary basis.  The better argument appears to be that these arrangements do not meet the unique requirements of Oregon law prerequisite to enforcement of a noncompete agreement.  However, there are no conclusive Oregon judicial opinions on the issue as of this writing in 2019.

This particular issue was appealed to the Oregon Court of Appeals in a recent case, but the court was able to resolve the matter without having to decide the issue.  Oregon Psychiatric Partners, LLP v. Henry, Case No. 15CV08506; A162755 (2018).  In that case, the employee, a psychiatric nurse practitioner, was compensated on a pay structure based on patients seen rather than on a true salary basis.  Ultimately, this issue will no doubt be have to be decided by the appellate courts.

Other than the salaried employment requirement which was not decided, the Court of Appeals in Oregon Psychiatric Partners "conclude[d] that, to the extent that the parties' nonsolicitation agreement merely prohibited defendant from serving patients who, at the time, would otherwise have tended to return to OPP for services, the agreement was not subject to the requirements of ORS 653.295(1), as the trial court held."  (footnote omitted).  This holding hinged upon the application of subsection (4)(b) of ORS 653.295, which specifies that the statute does not apply to"(b) A covenant not to solicit employees of the employer or solicit or transact business with customers of the employer."  This provision is troubling for employees, and is likely to be subject to further activity in Oregon courts if not the legislature.  As the Oregon Psychiatric Partners Court observed, in a lengthy footnote 7, which reads in part:  "Given that a prohibition on transacting business with former customers could be viewed as exceeding the legislative concerns that warranted an exception for nonsolicitation agreements, the legislature may at some point wish to reconsider how far that exception should extend.  We, however, construe only the text that the legislature has given us." 

The issue with subsection (4)(b) of ORS 653.295(1) is, frankly, that it can be read to allow employers to impose restrictions that are tamatamount to noncompetition agreements, without meeting the requirements of Oregon law as codified in ORS 653.295.  A full discussion of this issue is beyond the scope of this short article.  

4.  New Statutory Requirement of Notice to Employee at Termination
Effective January 1, 2020, Oregon's noncompete statute will have a new requirement.
The Oregon legislature passed a bill, approved by the House and Senate and signed into law by the Oregon Governor, Oregon HB 2992-A , providing that an employer must provide an employee with a signed, written copy of his or her noncompetition agreement within 30 days of employment termination as a condition of enforceability.  

It remains to be seen exactly how this new law may or may not affect the jurisprudence in this area going forward.  

5.  Conclusion
Over the past decade, developments in the area of Oregon noncompetition agreements have provided some clarification, but unique circumstances in future cases will certainly require further elaboration and interpretation from the Oregon courts.  If you would like a consultation or require representation in litigation concerning an Oregon noncompete agreement, or Oregon non-solicitation agreement or other restrictive covenants, please feel free to email or call.  

Although litigation on an hourly fee basis is expensive, I strive to keep my hourly rates reasonable and, in the employment law world, preventive counseling and legal advice is generally the best way to avoid expensive problems.