The employment relationship is at its heart a contractual relationship. This article will address general considerations governing employment contracts between Oregon employers and employees. This article does not constitute legal advice and specific questions about your employment contract should be directed to an experienced Oregon employment attorney.
As in other jurisdictions, Oregon employment contracts may be express or implied. Express employment contracts are sometimes documented in written agreements, particularly for managerial employees, but express contracts are more frequently formed by oral agreement. Unlike express employment contracts, implied contracts are based upon the course of dealing between the employer and employee. Implied agreements may be based upon oral representations and policies expressed in employee handbooks or employer policy manuals, or they may be based upon the course of dealing between the parties.
Other types of employment contracts include the collective bargaining agreement (“CBA”), a common type of employment contract that applies to a group of employees whose representatives have bargained for terms and conditions of employment applicable to all employees who are members of the union. Other types of contracts frequently encountered in the Oregon workplace include noncompetition and nonsolicitation agreements. Another contract commonly utilized in the employment arena is the Severance Agreement, which is typically negotiated upon the termination of employment and which is almost always committed to writing.
Express Employment Contracts in Oregon
Express employment contracts can be formed by explicit oral agreement or may be documented in writing. Written employment agreements need not be embodied in a formal employment contract; they can also be memorialized in letters or in other documentation. The formation of both oral and written employment contracts is subject to the basic elements of offer, acceptance, and consideration. Typically, the offer and acceptance will be documented in the oral representations exchanged between the parties or in the written contract itself. Consideration is something of value exchanged between the parties to an enforceable contract, e.g., the employee’s labor that is provided in exchange for compensation paid by the employer.
Note that the implied covenant of good faith and fair dealing is generally applicable to all contracts, including employment contracts. And like other contracts, employment contracts can be enforced if the contract is breached. The subject of remedies for breach of employment contract is discussed in a separate section of this article below. Common law defenses to the formation of enforceable contracts are also applicable to employment contracts. Lack of consideration is occasionally a viable defense to the formation of an employment contract. Another potential defense to the formation of an enforceable employment contract is the Statute of Frauds, which provides that if an agreement cannot be performed within one year it must be in writing to be enforceable.
The parties to an Oregon employment contract can specify a fixed period of employment or the agreement can be for an indeterminate term. An Oregon employment contract can incorporate an at-will provision, or it can alter the at-will presumption with a provision allowing termination only for good cause. In such contracts, good cause may be explicitly defined in the agreement, and bad faith, fraud, failure to use best efforts, or criminal activity may constitute good cause for termination.
Common provisions of express employment contracts include:
- Parties to the Contract
- Job Title
- Term of Employment (whether definite or indefinite)
- Confidentiality Provisions
- Intellectual Property Ownership
- Privacy (or lack of privacy in work-related communications)
- Choice of Laws
- Integration Provision
- Termination Clause
- Attorney’s Fees Provision
Any of these basic provisions can be subject to interpretation, and may or may not be enforceable. For example, the definition of confidential information or trade secrets is a frequently litigated subject. Are customer lists trade secrets? (The answer: Generally, yes. ORS 646.461). Choice of law provisions are also subject to judicial interpretation and may or may not be enforceable as written. In Oregon, ORS 15.320 provides that Oregon law will apply to a contract for services to be performed primarily in Oregon by an Oregon resident.
Implied Employment Contracts in Oregon
Many aspects of the Oregon employment relationship may be implied, including the terms of compensation and benefits as well as job duties and responsibilities. The source of implied contract terms can be nearly any representation that is communicated in some fashion to the employee. Such representations can be found in employee handbooks or manuals, memoranda, flyers and posters, or they may be communicated to the employee in discussions or presentations at company meetings. Course of dealing is another common source of implied contractual terms. Course of dealing refers to the common practices and procedures historically employed in the workplace. Industry standards and practices can also be the basis for implied contractual agreements.
Note that while statutory requirements are rarely addressed between employer and employee in implied (or express) employment contracts, certain statutory provisions of Oregon law apply to most employment relationships. Thus, Oregon statutory provisions must be read alongside, and in conjunction with, any express or implied contractual terms. By way of example, unless an express exemption applies, an employer and employee cannot enter into a contract whereby the employee is required to work for less than the minimum wage or has agreed to waive statutory entitlement to overtime pay. or other wage and hour protections. ORS 652.360.
Some of the most important statutory and regulatory provisions in Oregon are:
- Minimum wages. ORS 653.025. Unless an exemption applies, every employee is entitled to the minimum wage.
- Overtime compensation. ORS 653.261. Unless an exemption applies, every employee is entitled to overtime compensation, which is one and one-half times the regular rate of pay for all hours worked over 40 per week.
- Timing of Payment During Employment and at Termination. ORS 652.120 and 652.140.
- Itemized Statement of Deductions. ORS 652.610.
- Right to Inspect Employment File. ORS 652.750. All employees are entitled to inspect their employment file within 45 days of request according to the terms of the statute.
- Meal and Rest Periods. OAR 839-020-0050.
While these statutory provisions are not usually addressed in an employment contract, they are nonetheless mandatory terms of employment. For example, where the minimum wage law is violated an employee’s claim for relief will generally be pleaded under the statute and not as a breach of contract claim. The applicable statute of limitations will be the 6-year statute of limitations set forth in ORS 12.080. It is important to note that contract terms will not control over statutory provisions if the contract terms are contrary to law. For example, an implied (or express) employment contract may bestow the job title of “manager” upon an employee; but if the employee does not meet the statutory and regulatory definition of an exempt manager, the employee will be entitled to overtime compensation under ORS 653.261.
Other Types of Oregon Employment Contracts
Other types of employment contracts, or contractual provisions that are found in some employment contracts, are:
- Noncompetition agreements
- Nonsolicitation agreements
- Arbitration provisions
Employees should be cautious about signing employment contracts containing these provisions unless they understand the meaning of the agreement and the consequences of signing. If possible, it is usually a good idea to consult with an Oregon employment attorney before signing employment contracts.
Noncompetition agreements in Oregon are governed by the statutory provisions found at ORS 653.295. Noncompetition agreements can be embodied in a separate document or can be part of a global employment contract. A detailed discussion of noncompetition agreements is beyond the scope of this article. However, the primary requirements for a noncompetition agreement to be enforceable are as follows:
- The employer must inform the employee of the noncompetition agreement in a written employment offer received by the employee at least two weeks prior to the first day of employment, or the noncompetition agreement must be “entered into upon a subsequent bona fide advancement of the employee by the employer.”
- The employee must be an exempt “white collar” worker under ORS 653.020(3).
- The employer must have a protectable interest.
- The employee’s annual gross salary and commissions must exceed the median family income for a four-person family, as set by the United States Census Bureau (this compensation floor will become a set dollar figure effective January 1, 2022, pursuant to 2021 amendments to the statute)
- The employer must provide a copy of the document containing the noncompete provision after the employment ends, but within 30 days of the employee's last date of employment.
In addition, a noncompetition agreement may not impose restrictions on an employee for more than eighteen months (this maximum period will be reduced to one year, effective January 1, 2022). ORS 653.295. While the Oregon noncompetition statute does not address the geographical scope of an enforceable agreement, a standard of reasonableness is generally required. The geographic scope of such agreements can be very limited, e.g., confined to a given city, county, or state, but noncompetition agreements have been found to be enforceable with an international scope depending upon the nature of the industry and the employment position at issue. Noncompetition agreements are typically enforceable through injunctive relief, although damages can be recovered in appropriate cases.
Note that bonus restriction agreements and nonsolicitation agreements are expressly excluded from the coverage of the Oregon statute. ORS 653.295. Nonetheless, nonsolicitation agreements are still subject to the basic requirements of contract formation. The specific wording of such agreements is very important. Courts have held that some purported nonsolicitation agreements are in fact noncompetition agreements, and are thus subject to the stringent requirements of ORS 653.295.
Like noncompetition agreements, arbitration provisions are becoming increasingly common. From the employee’s perspective, it is difficult to see how it is in an employee’s interest to execute an arbitration clause waiving any right to seek relief in court, including a jury trial and the right to appeal. The enforceability of arbitration agreements is subject to many of the same contract formation issues as any other contract, including unconscionability. Note that the existence of an arbitration clause does not mean that an employee has no right to seek relief from violations of law that may arise in the employment context. An enforceable arbitration clause will, however, generally specify the arbitration forum and limit the availability or scope of many procedures that are available in court to ensure a just resolution of claims.
Remedies for Breach of an Oregon Employment Contract
The most common remedy available to an employee upon the breach of a fixed-term contract is the amount of compensation the employee would have earned under the contract through its duration, which is offset by the amount that the employee earned or should have earned with diligent mitigation of damages during that same period. Other disputed terms that may be at issue if an employment contract is breached are unpaid benefits, as well as unpaid but owing commissions, bonuses, or other forms of compensation. As mentioned above, employment contracts may provide for attorney’s fees to be awarded to the prevailing party. Many attorney’s fees provisions in employment contracts are two-way fee provisions; this means that either the employee or employer could be liable for paying the other party’s fees in a breach of contract action. Note, however, that even if a contractual attorney's fee provision purports to be one-way, Oregon law mandates reciprocity, i.e. if a contract contains an attorney fee provision, then the prevailing party is entitled to fees, regardless of whether the contract states that only the employer, for example, is entitled to its attorney's fees upon prevailing. ORS 20.096.
Certain types of injunctive relief against an employee may be available to the employer, but the employee’s specific performance of the contract cannot be forced. Emotional distress and punitive damages are generally not available in breach of contract actions.
I recommend that you consult with an experienced employment lawyer if you are considering executing an Oregon employment contract. Reviewing, negotiating, and advising our clients concerning their employment contracts is an important part of my law practice.