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In a growing national trend, Oregon is poised to take action in the 2021 Legislative Session to further restrict the use of non-compete agreements. Employers should be aware of how Senate Bill 169 (“SB 169”) may affect their non-compete agreements. With these forthcoming changes in Oregon, now is as good a time as ever for employers to review their practices and freshen up on the rules, so they can make informed hiring decisions and avoid breaching an enforceable non-compete agreement.
Timing: Good planning goes a long way to ensure a non-compete agreement is enforceable because an employer can only lawfully enter into a non-compete agreement at discrete times during the course of employment. An employer must provide notice in a written job offer that the employee will be required to sign a non-compete agreement as a condition of employment and the notice must be provided at least two weeks before the first day of employment. It is a best practice to provide a written job offer together with the non-compete agreement and require the employee to sign the agreement two weeks before the start of employment.
The only other time an employer can provide an employee a non-compete agreement is on a “bona fide advancement.” To qualify, the advancement needs to entail more than a raise, more generous benefits or new job title because it must represent a material increase of responsibility, perhaps with new or different reporting relationships. Ideally, an employer should provide a written job offer and non-compete agreement at the same time, and require their employees to sign both on the same day. Employers should take care to abide by these timelines, as courts tend to give employers little leeway.
Targeting the Right Employees: Ordinarily, only employees who meet duty and salary tests can be bound by a non-compete agreement. Among the proposed changes in SB 169 is a slight increase in the salary test that would be pegged to the Consumer Price Index. (Currently, the salary test changes based on Census data, which is not regularly released.) Under SB 169, only executive, professional or administrative employees earning at least $100,533 in salary and commissions in the last year of their employment can be subject to an enforceable non-compete agreement. Other employees can be subject to a non-compete agreement too, but only if the employer provides additional compensation while the restriction is in effect.
Employers may be surprised that some salespeople may not be subject to a non-compete agreement, as they often work with some of the most sensitive, confidential information and represent the biggest risks of unfair competition. In these cases, employers should consider a non-solicitation agreement (instead of or in addition to a non-compete agreement) because they prohibit former employees from poaching an employer’s customers and are exempt from these statutory requirements. Caution, however, should be taken when drafting a non-solicitation agreement to avoid raising suspicion that it is simply a non-compete agreement in disguise.
Scope of the Restrictions: Notably, SB 169 reduces the time during which a non-compete agreement could be enforced from 18 to 12 months. Current non-compete agreements that last longer than 12 months are still enforceable, as the proposed legislation applies prospectively only. In any case, Oregon courts will not invalidate a lawful non-compete agreement that restricts a former employer from working for a competitor for 18 or 24 months, but will instead shorten it to the maximum duration under the statute.
Nothing in SB 169 changes how a court assesses geographic restrictions. Employers should remain wary of broader geographic restrictions than are reasonably necessary. When faced with broad restrictions, a court may elect to void the entire agreement rather than partially enforce it.
Reminders of Obligations: It has always been a best practice to provide departing employees an executed copy of their non-compete agreement to remind them of their on-going obligations and make a written demand for return of any company property and documents remaining in their possession. It is now a requirement for employers to provide an employee with a copy of their signed non-compete agreement within 30 days of separation.
Severance Agreements: Employers should beware that boilerplate severance agreements can render an otherwise valid non-compete agreement completely unenforceable. Often, they contain what attorneys call an “integration clause” that provides that the severance agreement amends and replaces all prior contracts between the parties, including enforceable non-compete agreements. It is best to seek the advice of your favorite employment attorney when preparing a severance agreement to avoid inadvertently losing out on a valuable restrictive covenant.
The Takeaway: Despite increasingly vocal opposition to non-compete agreements (such as President Biden’s notable campaign proposal calling to eliminate all but a select few non-compete agreements), courts continue to enforce lawful, reasonable non-compete agreements. For those unfamiliar with it, Oregon’s peculiar statutory restrictions on non-compete agreements may appear very technical and SB 169 does little to dispel those impressions. Nonetheless, both employers who rely on non-compete agreements, and those that may hire individuals who signed non-compete agreements, should be aware of the common pitfalls to enforcement actions and Oregon’s new proposed restrictions so they can make informed decisions.
Josh Goldberg is an employment law attorney at Barran Liebman LLP, where he frequently advises on and litigates non-compete, non-solicitation and non-disclosure agreements. Contact him at 503-276-2107 or firstname.lastname@example.org