(Thanks to Daniel Barnhart of Bullard Smith Jernstedt Wilson for sharing this article.)
On August 3, 2007, Governor Kulongowski signed a bill that will make it a lot harder for employers to restrict employees from leaving to work for a competitor. At the same time, the bill also makes it easier for employers to restrict employees from diverting customers and employees to a competitor when they leave. The law, which goes into effect on January 1, 2008, only applies to noncompete agreements signed after the effective date.
Some Windows Close on Noncompete Agreements
Noncompete lawsuits have been on the rise. According to the Oregon Labor Commissioner Dan Gardner, “There is a dangerous expansion in the use of non-competition agreements in Oregon and Oregon workers are being unfairly prevented from working in their chosen fields of expertise.” To address these concerns, Commissioner Gardner sponsored Senate Bill 248, which purports to make noncompetition agreements enforceable only “against highly paid managers and professional staff and only if certain conditions are met.”
The bill imposes numerous new restrictions on noncompete agreements. Key provisions include:
- “Nonexempt” employees (primarily hourly and nonsupervisory employees) cannot be subject to noncompete agreements;
- An employer must inform a potential employee in writing about a noncompete agreement at least two weeks before the first day of work;
- A noncompete agreement is unenforceable unless the employer has a “protectable” interest, such as access to trade secrets;
- A noncompete agreement cannot be enforced against an employee whose total gross salary is less than that of the median income of a family of four in Oregon (currently about $61,000 a year); and
- A noncompetition agreement cannot last longer than two years;
A Door Opens on Nonsolicit Agreements
Although Senate Bill 248 puts a short leash on “noncompete” agreements, it now makes it easier for employers to enforce “nonsolicit” agreements. A noncompete agreement restricts an employee from working for a competitor after the employment terminates. It takes an employee out of the field altogether for a period of time. Although a nonsolicit agreement is like a noncompete agreement in some ways, it is a more limited. It does not restrict an employee from working for a competitor altogether. It merely restricts an employee or “pied piper” from soliciting the customers and other employees of the employer to leave or do business elsewhere.
Prior to the passage of Senate Bill 248, Oregon courts treated noncompete and nonsolicit agreements in the same manner. Neither was enforceable unless the employee signed the agreement at the start of employment or as part of a bona fide advancement. Now, after the passage of Senate Bill 248, a nonsolicit agreement will be enforceable regardless of when an employee signs it. The new law states that the restrictions in Oregon’s noncompete law no longer apply to “[a] covenant not to solicit employees of the employer or solicit or transact business with customers of the employer.”
This constitutes a major change in Oregon law. Now, for the first time in decades, Oregon employers can require their existing employees to sign nonsolicit agreements, regardless of whether they put the employee on notice of such a requirement before they start their employment.
It is unclear whether the legislature fully appreciated this change they were making to Oregon law. This change does, however, strike a balance that makes Oregon law more consistent with the laws of other states. Starting on January 1, 2008, employers who need to protect themselves from the risk of a pied piper can require existing employees to sign a contract not to solicit employees of the employer or solicit or transact business with customers of the employer.
Please feel free to contact Bullard Smith Jernstedt Wilson with any questions regarding the impact of Senate Bill 248 or any other labor, employment and benefits issues.
~DANIEL R. BARNHART
Copyright 2007
Bullard Smith Jernstedt Wilson