Changes Imminent to Oregon Law on Noncompetition Agreements
June 12, 2007
Employers may soon bid farewell to the days when Oregon's test for enforceability of a noncompetition agreement was as simple as, "did the employee sign the noncompetition agreement upon initial employment or a subsequent bona fide advancement?" Last week, the Oregon legislature took the last step toward approving major changes to Oregon's laws on arbitration agreements and noncompetition agreements. The proposed bill came out of the House Judiciary Committee on June 7 with a recommendation to pass.
Under the new law, which is more complicated than the current law, noncompetition agreements are voidable unless one of the following applies:
The employer tells the employee in a written employment offer at least two weeks before the first day of work that a noncompetition agreement is required as a condition of employment,
The noncompetition is entered into upon a subsequent bona fide advancement of the employee by the employer,
The employee is engaged in administrative, executive or professional work and performs predominantly intellectual, managerial or creative tasks, exercises discretion and independent judgment, and earns a salary,
The employer has a "protectable interest," which means that the employee has access to trade secrets, competitively sensitive confidential business or professional information, or is an on-air talent, or
The total amount of the employee's annual salary and commissions at the time of termination exceeds the median family income for a four-person family.
The term of noncompetition agreements may not exceed two years. The new law also contains a confusing provision stating that noncompetition agreements are
enforceable for the full term of up to two years if the employer pays the employee during the restricted period the greater of (1) compensation equal to at least 50% of the employee's annual gross base salary and commissions at the time of termination, or (2) 50% of the median family income for a four-person family. Although unclear, we anticipate that the practical effect of this provision is an extra requirement that employers must continue to pay employees before any
noncompetition agreement can be enforced.
Stay tuned for an update on the new laws surrounding arbitration agreements between employers and employees.