Noncompetition agreements in Oregon

Noncompete agreements are restrictions on employment. These legal tools outline when a former employee can provide products or services similar to their previous work after termination of employment. Employer’s use these legal tools to help protect their interests.

In some cases, these agreements are ethical and valuable arrangements. In others, critics argue employers abuse the reach of the agreement to the detriment of the employee and ultimately have a negative impact on commerce as a whole. This critical stance is one shared by the current administration and the US Federal Trade Commission (FTC).

The FTC has taken a clear stance against the use of these agreements and is pushing to ban the use of these agreements. Although the ban has not yet become reality, it is important for employers to be aware of the possibility and keep up to date on the discussions.

How does Oregon state law guide the use of noncompete agreements?

Oregon state law currently allows for noncompetition agreements if included in an employment contract or with a subsequent advancement of the employee by the employer. The noncompete agreement must relate to a protectable interest. Two primary examples that often qualify for this level of protection can include:

• Protected information. There are scenarios when an employer or business owner requires the use of a noncompete agreement to protect confidential information. This can include a situation where the employee subject to the restriction has access to trade secrets or other competitively sensitive confidential business information.
• Investment in the employee. The employer could also have a right to a noncompete agreement if they provide the employee with training or additional education to help them improve within their profession as a means to protect their investment in the employee.

Courts are also very particular about the language used to create the boundaries of the restriction. Generally, the employer should not expect for the noncompete to last more than 18 months after the termination of the position. The court may also take the geographical reach of the restriction into account when determining whether it will allow an employer to enforce the noncompete agreement.

It is important to note that there are also additional rules regarding compensation that can impact the validity of the agreement. If, for example, an employer pays an employee at least 50% of their gross annual salary and commission at the time of termination the noncompete agreement is generally enforceable for the term of the agreement (up to 18 months as noted above).

How can business leaders make sure their agreements withstand a legal challenge?

There are two important steps that can help better ensure a strong and defensible noncompete agreement. The first occurs at the creation of the agreement. Take the time to review applicable law and court cases to better ensure the agreement is drafted and executed in line with the legal requirements.

The second involves execution. The agreement only offers the desired protection if you take the steps to enforce it during a potential violation. Without success at both steps, the agreement will not meet the business’ needs.