Oregon employment agreements often contain non-solicitation provisions. This article provides a brief introduction to non-solicitation agreements and summarizes some of the legal issues that arise in connection with this type of restrictive covenant. If you have questions about the implications or enforceability of your Oregon non-solicitation agreement, you should contact an Oregon employment attorney.
1. What is a Non-solicitation Agreement?
A non-solicitation agreement is a legal provision or clause in a contract that limits the right of an employee or other person, after they have left their prior employment, to directly or indirectly "solicit" a customer, client, patient, employee, vendor or independent contractor or other business entity.
A non-solicitation provision may be found in a document that is entitled "Non-solicitation Agreement," but these provisions are also found in a variety of other formats, including in documents entitled "employment agreement," "employment contract," "non-disclosure agreement (NDA)," "restrictive covenant agreement," "invention assignment agreement," or even in "employee handbooks" or "employment offer letters."
A non-solicitation provision may be found in a document that is entitled "Non-solicitation Agreement," but these provisions are also found in a variety of other formats, including in documents entitled "employment agreement," "employment contract," "non-disclosure agreement (NDA)," "restrictive covenant agreement," "invention assignment agreement," or even in "employee handbooks" or "employment offer letters."
2. What is solicitation?
"The issue of when a communication becomes a solicitation is in a sense a 'metaphysical' question, the answer to which turns out to be highly contextual." Edward D. Jones & Co., L.P. v. Kerr, 415 F.Supp. 861, 873 (S.D. IN 2019), citing Corp. Tech., Inc. v. Harnett, 731 F.3d 6, 10 (1st Cir. 2013). In the Kerr decision, the U.S. District Court for the Southern District of Indiana declined to issue a preliminary injunction requested by Edward Jones, against its former employee, Kerr. In that case, after Kerr resigned in lieu of firing, he joined a competitor financial management firm and, as is the practice in the brokerage industry, sent a communication to his clients to advise them that he had left Edward Jones and joined another firm. This communication did not solicit the clients to follow Kerr, although many, primarily family and friends, did so.
Edward Jones argued that the notice Kerr sent to his clients was a "solicitation" that violated his non-solicitation agreement with Edward Jones. In holding that Kerr's notice did not constitute impermissible solicitation under Missouri law (although Kerr worked in Indiana, his contract included a Missouri choice of law provision), the court noted that, "Consumers are entitled to know when their trusted financial advisors will no longer be available to serve them." Id. at 876. Along with the fact that Kerr submitted declarations from numerous clients stating that they had not been solicited, the facts also revealed that Edward Jones itself reached out by telephone to advise Kerr's clients that Kerr had left Edward Jones; and, significantly, Edward Jones itself instructs its own new hires to do exactly what Kerr did: "Edward Jones has not disputed that its own protocols for bringing on duty its newly hired financial advisors includes instructing them to call their former clients to inform them of their new affiliation with Edward Jones and to provide their new contact information." Id. at 874.
As suggested by the Kerr decision, some examples of solicitation are obvious but others are not. For example, if an employee leaves employment with Employer A, goes to work with Employer B, and the next day sends a targeted communication to a list of former clients the employee worked with at Employer A and urges those clients to leave A and bring their business to B, that is clearly a solicitation. The explicit solicitation in this hypothetical distinguishes it from the mere notice of departure at issue in Kerr.
But let's say that after leaving Employer A, an employee encounters a former client (or customer or patient) in the local grocery store. The former client inquires where the employee is working these days, and the employee advises that the employee is now working with Employer B. Employee and former customer wish each other well and continue their shopping. Is that interaction a solicitation? No, under even the most employer-friendly interpretation of the English language, that is not solicitation.
3. What does the Oregon statute ORS 653.295 say about solicitation?
Oregon's noncompete statute expressly excludes non-solicitation agreements from its reach. ORS 653.295(4)(b) states that subsections (1) and (2) do not apply to, "A covenant not to solicit or transact business with customers of the employer."
This exclusion unfortunately raises as many questions as it answers, primarily due to the "transact business with customers of the employer" language. As mentioned above, the concept of solicitation itself can be complicated enough, subject to varying interpretations and so forth. But "transact[ing] business with customers of the employer" is truly a nettlesome phrase. To illustrate with an extreme example, let's say that you have signed with your employer a non-solicitation provision including the "transact business" prohibition. Let's also suppose one of your employer's customers is an international coffee enterprise, with shops around the world. Does your non-solicitation provision with a "transact business" catch-all mean that, henceforth, for the duration of the "restricted period," you cannot purchase a cup of coffee from the aforementioned hypothetical coffee conglomerate? Probably no, but, technically, yes. Surely this cannot have been what the legislature intended?
In a recent case, the Oregon Court of Appeals has been called upon in sucessive appeals to construe ORS 653.295. Oregon Psychiatric Partners, LLP v. Henry, 315 Or App 726 (2022). In that case, defendant was a psychiatric mental health nurse practitioner who left her employer, plaintiff Oregon Psychiatric Partners ("OPP") to start her own practice. The nurse practitioner had signed an employment agreement which contained a "LIMITED NON-COMPETITION" clause purporting to preclude the employee, for a period of 2 years within a 50-mile radius of Eugene, Oregon, from providing services to any patients she had seen at OPP in the 2-year period prior to termination. In the first trial in Henry, which was tried to a judge, the trial court found that, with respect to the noncompetition provision, the agreement did not meet all of the requirements of ORS 653.295(1). The trial court further held that the exception of 653.295(4)(b), which exempts non-solicitation agreements from the statute, did not apply. The Court of Appeals held that the agreement was at least in part enforceable as to customers who would "have tended to return to OPP for services."
Upon remand, the trial court again found for the defendant nurse practitioner, on the grounds that the employer OPP had not established the "customer" status of the patients the nurse practitioner had treated, and therefore the defendant had not violated the restrictive covenant. And again the plaintiff employer OPP appealed. The second appellate decision in Henry is noteworthy for its holding that, "[O]nce an employee takes affirmative steps to manifest an intention to treat a noncompetition agreement as void, it is the employer's burden to prove that the agreement is enforceable. There are two means for the employer to establish enforceability: either (1) prove that the five criteria in ORS 653.295(1) are satisfied, or (2) prove that the agreement comes within an exception to ORS 653.295(1), such as ORS 653.295(4)(b)."
4. How about "indirectly" soliciting?
While perhaps not as difficult in practice as the "transact business" problem, the term "indirectly" is ubiquitous in restrictive covenants, including non-solicitation provisions. How to interpret a mandate that thou shall not indirectly solicit? If you are a developer of software who works for Company A, which sells products incorporating your software coding/engineering efforts, are you "indirectly" soliciting customers if your new employer, Company B, sells to a customer base that overlaps to some extent with Employer A's customers? Likely not, but an aggressive Employer A might try to rattle the saber over this scenario. However, Employer A's umbrage is likely to lead to litigation on these hypothetical facts only if there are trade secrets and confidentiality issues at stake. On the other hand, restrictive covenant litigation is extremely expensive and this article, of course, is not legal advice. If you have questions concerning a non-solicitation provision you have signed or which you are considering signing, you should consult with an experienced Oregon employment attorney.
You should closely read the language of your non-solicitation provision to see what is purportedly verboten and what is not. Sometimes the implications of a non-solicitation agreement are clear and other times . . . . not so much.
"The issue of when a communication becomes a solicitation is in a sense a 'metaphysical' question, the answer to which turns out to be highly contextual." Edward D. Jones & Co., L.P. v. Kerr, 415 F.Supp. 861, 873 (S.D. IN 2019), citing Corp. Tech., Inc. v. Harnett, 731 F.3d 6, 10 (1st Cir. 2013). In the Kerr decision, the U.S. District Court for the Southern District of Indiana declined to issue a preliminary injunction requested by Edward Jones, against its former employee, Kerr. In that case, after Kerr resigned in lieu of firing, he joined a competitor financial management firm and, as is the practice in the brokerage industry, sent a communication to his clients to advise them that he had left Edward Jones and joined another firm. This communication did not solicit the clients to follow Kerr, although many, primarily family and friends, did so.
Edward Jones argued that the notice Kerr sent to his clients was a "solicitation" that violated his non-solicitation agreement with Edward Jones. In holding that Kerr's notice did not constitute impermissible solicitation under Missouri law (although Kerr worked in Indiana, his contract included a Missouri choice of law provision), the court noted that, "Consumers are entitled to know when their trusted financial advisors will no longer be available to serve them." Id. at 876. Along with the fact that Kerr submitted declarations from numerous clients stating that they had not been solicited, the facts also revealed that Edward Jones itself reached out by telephone to advise Kerr's clients that Kerr had left Edward Jones; and, significantly, Edward Jones itself instructs its own new hires to do exactly what Kerr did: "Edward Jones has not disputed that its own protocols for bringing on duty its newly hired financial advisors includes instructing them to call their former clients to inform them of their new affiliation with Edward Jones and to provide their new contact information." Id. at 874.
As suggested by the Kerr decision, some examples of solicitation are obvious but others are not. For example, if an employee leaves employment with Employer A, goes to work with Employer B, and the next day sends a targeted communication to a list of former clients the employee worked with at Employer A and urges those clients to leave A and bring their business to B, that is clearly a solicitation. The explicit solicitation in this hypothetical distinguishes it from the mere notice of departure at issue in Kerr.
But let's say that after leaving Employer A, an employee encounters a former client (or customer or patient) in the local grocery store. The former client inquires where the employee is working these days, and the employee advises that the employee is now working with Employer B. Employee and former customer wish each other well and continue their shopping. Is that interaction a solicitation? No, under even the most employer-friendly interpretation of the English language, that is not solicitation.
3. What does the Oregon statute ORS 653.295 say about solicitation?
Oregon's noncompete statute expressly excludes non-solicitation agreements from its reach. ORS 653.295(4)(b) states that subsections (1) and (2) do not apply to, "A covenant not to solicit or transact business with customers of the employer."
This exclusion unfortunately raises as many questions as it answers, primarily due to the "transact business with customers of the employer" language. As mentioned above, the concept of solicitation itself can be complicated enough, subject to varying interpretations and so forth. But "transact[ing] business with customers of the employer" is truly a nettlesome phrase. To illustrate with an extreme example, let's say that you have signed with your employer a non-solicitation provision including the "transact business" prohibition. Let's also suppose one of your employer's customers is an international coffee enterprise, with shops around the world. Does your non-solicitation provision with a "transact business" catch-all mean that, henceforth, for the duration of the "restricted period," you cannot purchase a cup of coffee from the aforementioned hypothetical coffee conglomerate? Probably no, but, technically, yes. Surely this cannot have been what the legislature intended?
In a recent case, the Oregon Court of Appeals has been called upon in sucessive appeals to construe ORS 653.295. Oregon Psychiatric Partners, LLP v. Henry, 315 Or App 726 (2022). In that case, defendant was a psychiatric mental health nurse practitioner who left her employer, plaintiff Oregon Psychiatric Partners ("OPP") to start her own practice. The nurse practitioner had signed an employment agreement which contained a "LIMITED NON-COMPETITION" clause purporting to preclude the employee, for a period of 2 years within a 50-mile radius of Eugene, Oregon, from providing services to any patients she had seen at OPP in the 2-year period prior to termination. In the first trial in Henry, which was tried to a judge, the trial court found that, with respect to the noncompetition provision, the agreement did not meet all of the requirements of ORS 653.295(1). The trial court further held that the exception of 653.295(4)(b), which exempts non-solicitation agreements from the statute, did not apply. The Court of Appeals held that the agreement was at least in part enforceable as to customers who would "have tended to return to OPP for services."
Upon remand, the trial court again found for the defendant nurse practitioner, on the grounds that the employer OPP had not established the "customer" status of the patients the nurse practitioner had treated, and therefore the defendant had not violated the restrictive covenant. And again the plaintiff employer OPP appealed. The second appellate decision in Henry is noteworthy for its holding that, "[O]nce an employee takes affirmative steps to manifest an intention to treat a noncompetition agreement as void, it is the employer's burden to prove that the agreement is enforceable. There are two means for the employer to establish enforceability: either (1) prove that the five criteria in ORS 653.295(1) are satisfied, or (2) prove that the agreement comes within an exception to ORS 653.295(1), such as ORS 653.295(4)(b)."
4. How about "indirectly" soliciting?
While perhaps not as difficult in practice as the "transact business" problem, the term "indirectly" is ubiquitous in restrictive covenants, including non-solicitation provisions. How to interpret a mandate that thou shall not indirectly solicit? If you are a developer of software who works for Company A, which sells products incorporating your software coding/engineering efforts, are you "indirectly" soliciting customers if your new employer, Company B, sells to a customer base that overlaps to some extent with Employer A's customers? Likely not, but an aggressive Employer A might try to rattle the saber over this scenario. However, Employer A's umbrage is likely to lead to litigation on these hypothetical facts only if there are trade secrets and confidentiality issues at stake. On the other hand, restrictive covenant litigation is extremely expensive and this article, of course, is not legal advice. If you have questions concerning a non-solicitation provision you have signed or which you are considering signing, you should consult with an experienced Oregon employment attorney.
You should closely read the language of your non-solicitation provision to see what is purportedly verboten and what is not. Sometimes the implications of a non-solicitation agreement are clear and other times . . . . not so much.