Oregon Non-Competition Agreements Important Considerations

by Joel Christiansen

Pending Senate Bill to Void Oregon Noncompetes

On March 2, 2017, the Oregon Committee on Business and Transportation sponsored a bill, Senate Bill 977 — full text — that would, if passed into law, “[void] noncompetition agreements except to extent that former employee may not contact former customer or client to provide similar product, process or service for six months after employee’s date of separation.” As of April 2017, the bill is stalled in the Senate Committee on Judiciary. The only testimony offered at a April 12, 2017 meeting came from business interest groups – see all testimony here. From this record, it does not appear that employees or employee groups have offered any testimony about the bill. I encourage any Oregonian reading this web page to contact your elected official and share your opinion about noncompetes and Senate Bill 977.

Oregon’s Current Noncompete Statute – ORS 653.295

Oregon statute provides several restrictions related to non-competition agreements in the employment context. “The term of a noncompetition agreement may not exceed 18 months from the date of the employees termination. The remainder of a term of a noncompetition agreement in excess of 18 months is voidable and may not be enforced by a court of this state.” ORS 653.295(2). Additionally, Oregon law requires the following:

  1. An employee must receive two weeks’ advance written notice of the non-compete or the non-compete must be entered into upon a subsequent bona fide advancement. ORS 653.295(1)(a).
  2. The employee must be an exempt employee under state wage and hour law. ORS 653.295(1)(b).
  3. The employer must have a “protectable interest.” ORS 653.295(1)(c).
  4. The employee’s annual gross salary must exceed “the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee’s termination.” ORS 653.295(1)(d). (that amount is in the range of $70,000.00+ per year).

Agreements that do not meet these requirements may be voidable (not the same as void…) under Oregon law.

Court Opinions Clarifying Oregon Non-Competition Law

In addition to Oregon’s general statute, there are several cases that further clarify the limits of non-competition agreements under state law. For example, Naegeli Reporting Corp. v. Peterson, Case No. 3:11-1138-HA (D. Or., Dec. 5, 2011), Judge explains Oregon’s very broad construction of the term “noncompetition agreement,” which may include overly broad non-solicitation agreements.

Oregon cases also discuss several other topics relevant to non-competition agreements. These topics and cases include:

  1. The definition of “protectable interest”: Nike, Inc. v. McCarthy, 379 F.3d 576 (9th Cir. 2004); Volt Services Group v. Adecco Emp’l Servs., Inc., 178 Or.App. 121 (2001); Rem Metals Corp. v. Logan, 278 Or. 715 (1977); North Pac. Lumber Co. v. Moore, 275 Or. 359, 364-66 (1976).
  2. Consideration required to support a non-compete: Konecranes, Inc. v. Sinclair, 340 F.Supp.2d 1126 (D. Or. 2004); First Allmerica Fin. Life Ins. Co. v. Sumner, 212 F.Supp.2d 1235 (D. Or. 2002); McCombs v. McClelland, 223 Or. 475 (1980).
  3. Termination for refusal to sign a non-compete: Dymock v. Northwest Safety Protective Equip. for Or. Indus., supra.
  4. Reasonableness of time and geographic restrictions: Jeld-Wen Holding, Inc. v. Ribas, Civ. Case No. 11-0343-CL, (D. Or., Aug. 11, 2011); Nike, Inc. v. McCarthy, supra; Rensema v. Nichols, 83 Or.App. 322 (1986); Eldridge v. Johnston, 195 Or. 379 (1952); Kelite Prods. Corp. v. Brandt, 206 Or. 636 (1956).
  5. Court modification of overbroad agreements: Konecranes, Inc. v. Sinclair, supra.; Lavey v. Edwards, 264 Or. 331 (1973);
  6. Choice of law provisions: Konecranes, Inc. v. Sinclair, supra; Machado-Miller v. Mersereau & Shannon, LLP, 180 Or.App. 586 (2002); Upchurch v. USTNet, Inc., 836 F.Supp 737 (D. Or. 1993); Young v. Mobil Oil Corp., 85 Or.App. 64 (1987)
  7. Preliminary injunction standards: Nike, Inc. v. McCarthy, supra; Nike, Inc. v. McCarthy, 285 F.Supp.2d 1242 (D. Or. 2003); Stephenson v. Great Frame Up Systems, Inc., 184 F.Supp.2d 1048 (D. Or. 2002); Mail-Well Envelope Co. v. Saley, 262 Or. 143 (1972)
  8. Damages: Cascade Exch. v. Reed, 278 Or. 749 (1977); North Pac. Lumber Co. v. Moore, supra.

Enforcing Non-Competition Agreements

If a party breaches an enforceable non-competition agreement, the aggrieved party may seek injunctive relief (i.e., a court order restraining competitive activity), damages, and other relief under the parties’ agreement. The U.S. District Court in Nike, Inc. v. McCarthy, 285 F.Supp.2d 1242, 1243-44 (D. Or. 2003) explained the burden of proof for obtaining a restraining order:

To obtain a preliminary injunction, plaintiff must demonstrate either (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardships tips sharply in favor of the moving party. [Citations omitted] These are not two distinct tests, but rather are opposite end[s] of a single “continuum in which the required showing of harm varies inversely with the required showing of meritoriousness.” [Citation omitted]

Parties to a non-compete may also agree to certain substantive and procedural terms regarding the agreement’s enforcement. Common terms include liquidated damages, attorneys’ fees, arbitration, mediation, choice of law, and choice of venue.

The Context of Non-Competition Agreements in Oregon

In addition to non-competition agreements, parties must consider other related competitive restrictions that may apply. Non-competition agreements are frequently accompanied by other separate but related contractual duties such as non-solicitation agreements and confidentiality agreements. Some non-competition agreements also impose affirmative duties on employees, such as required disclosure of subsequent employer identity. It is important to understand the interplay between these concepts.

The Oregon Uniform Trade Secrets Act, ORS 646.641 et seq., prohibits misappropriation of trade secrets. The Courts have called trade secrets “one of the most elusive and difficult concepts in the law to define.” Learning Curve Toys, Inc. v. Plywood Toys, Inc., 342 F.3d 714 (7th Cir. 2003)(quoting Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978). The application of each of these laws relies heavily on case-specific facts (e.g., industry, position, employment details, access to information, historical business practices, etc.).

There are also a variety of peripheral restrictions, including the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq., and concepts such as breach of fiduciary duty and duty of loyalty, interference with contract or business expectancy, interference with present and future economic relations, conversion, and aiding and abetting tortious conduct. Such claims have the potential to affect: (1) prospective and subsequent employers (e.g., Volt Services Group v. Adecco Employment Services, Inc., 178 Or.App. 212 (2001)); (2) officers and directors (e.g., PMC, Inc. v. Kadisha, 93 Cal.Rptr. 2d 663 (2000)); (3) partners and joint venturers (e.g., McCallum v. Asbury, 238 Or. 257 (1964); General Universal Sys., Inc. v. Lee, 379 F.3d 131, 151-152 (5th Cir. 2004)); (4) parties to negotiations (e.g., Burten v. Milton Bradley Co., 768 F.2d 461, 463 (1st Cir. 1985)); and (5) parties who induce trade secret disclosures (Smith v. Dravo, 203 F.2d 372, 376 (7th Cir. 1953).