New legislation eviscerates non-competition agreements in Oregon
June, 2007
On June 27, 2007, the Oregon Legislature passed Senate Bill 248, which adds several onerous requirements in order for an employer to enforce a non-competition agreement against a former employee. The bill is currently awaiting the Governor's signature. Because the legislature is not in session, the Governor has thirty days to take action. If the Governor signs the bill, most non-competition agreements (entered into after the effective date of the Act) will be unenforceable under Oregon law.
Existing Law: Non-Competition Agreements Void Unless Entered into on Initial Employment or Bona Fide Advancement
Under current Oregon law, non-competition agreements (and non-solicitation agreements) entered into between an employer and employee are void unless they are entered into upon the "initial employment" of the employee or "subsequent bona fide advancement" of the employee with the employer. ORS 653.295.
Non-competition agreements must also be reasonable, supported by consideration and restricted as to duration and geographic scope. See, e.g., Olsten Corp. v. Sommers, 534 F.Supp. 395, 397 (D. Or. 1982).
Changes to Oregon Law Under Senate Bill 248
Senate Bill 248 amends Oregon's non-competition agreement statute in several significant respects. Interestingly, the bill makes non-competition agreements between employers and employees voidable (rather than void) if they do not satisfy the statutory requirements.
Senate Bill 248 eliminates the requirement for non-competition agreements to be entered into on initial employment. Instead, it requires the employer to inform the employee in a "written employment offer" that a non-competition agreement is required as a condition of employment. The employee must receive this notification at least two weeks before the first day of employment in order for the notice to be valid.
Additionally, the non-competition agreement is voidable unless three additional requirements are satisfied:
- The employee is paid a salary to perform creative, administrative, or managerial work;
- The employee has access to trade secrets; competitively sensitive confidential business information; or is employed as an on-air talent in the broadcasting industry; and
- The employee's annual salary exceeds the median family income for a four-person family, as determined by the United States Census Bureau.
These requirements apply whether the non-competition agreement is entered at inital employment as described above or subsequent bona fide advancement.
The bill restricts the term of a non-competition agreement to two years. Unlike the current statute, the new statute will not apply to non-solicitation agreements. If enacted, the new law will apply to all non-competition agreements signed on or after the effective date of the law.
Conclusion
If Senate Bill 248 becomes law, enforceable non-competition agreements will become the exception rather than the rule. It will be critical for employers and HR professionals to work with legal counsel to revise handbooks, policies and procedures to properly reflect the changed landscape of Oregon non-compete law. Please contact Bullivant's employment attorneys if you need additional details or have any questions.