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Does your noncompetition agreement actually protect your business? (Part 2 of 5)

On Behalf of | Jan 13, 2011 | Uncategorized

The following is part 2 of 5 of our blog series for both employers and employees:

The Law of Noncompetition and Nonsolicitation Agreements in Oregon

The Landscape

Over the years, the law of Noncompetition Agreements (aka: “covenants not to compete” or “restrictive covenants”) has evolved.  At one time such agreements were considered as per se invalid because of the public harm inherently caused by such restrictions. Now, in most states, reasonable restraints will be enforced.

Here in Oregon, the law generally disfavors Noncompetition Agreements in the employment context.  The law however does recognize the need of our businesses to protect sensitive information and investment in key employees.

In 2007, Oregon Governor Kulongoski signed Senate Bill 248 (.pdf), revising Oregon’s statutory language governing noncompetition agreements (for text of the current statute see ORS 653.295). The bill was strongly supported by the Oregon Bureau of Labor and Industries (BOLI), having received complaints about the enforcement of noncompetition agreements against low-wage workers and employees laid off during company downsizing.

On its face the law looked as if it would accomplish much of what BOLI intended: making noncompetition agreements more difficult for employers to enforce against employees.  The revised language makes voidable such agreements not meeting strict procedural hurdles, requires a minimum employee salary and a high-level job description, and prevents such agreement from being enforced for longer than a period of two years.

However, despite all these specific new changes, the statute also contained a loophole – it specifically exempted nonsolicitation agreements.  Prior to the 2007, both noncompetition and nonsolicitation agreements were treated as subject to the same restrictions (see Dymock v. NW Safety Equipment).  With the statutory change, however, one is strictly regulated while the other is essentially set free.

Because these new restrictions have been in effect for only a short time, the fallout, including interpretation by the courts, is somewhat uncertain.  While the law considerably restricts employers’ use of noncompetition agreements, it rolls back all the restrictions on nonsolicitation agreements.  And this distinction may, in practice, give employers more room to restrict competition solicitation than they had previously. 

Jump to Part 1: Introduction or Part 3: The Comparison