IMPORTANT: Legislature Changes Oregon’s Noncompetition Agreement Law

During the last hectic days of its 2007 Session, the Oregon Legislature passed a Bill that will make it more difficult to enter into an enforceable noncompetition agreement with an employee. The final version incorporated numerous provisions not seen in earlier drafts.

Under current Oregon law, noncompetition restrictions in an employment setting can be enforced only when they are entered into at either the start of employment or upon a “bona fide advancement” of the employee. Under Senate Bill 248, which will go into effect on January 1, 2008, several new requirements must also be satisfied:

• The employee must be advised of the requirement of a noncompetition agreement in a written employment offer letter received at least two weeks before the first day of employment;

• The employee must basically be “exempt” from overtime entitlements;

• The employer must have underlying protectible interests to which the employee has access, such as trade secrets or other competitively sensitive confidential business information; and

• The total annual compensation of the employee at the time of termination (salary and commissions) must be greater than the median family income for a four-person family (currently approximately $62,000)

The new law also provides that even if all of these requirements are met, in no event can a noncompetition restriction last longer than two years.

Note also that if an employee does not satisfy the “exempt” or total compensation test as set forth in the second and fourth bullet items above, a noncompetition restriction can still be enforceable provided that the employee continues to receive during the period of restriction the greater of either half of his total compensation at the time of separation or half of the median family income for a four-person family.

Significantly, these new restrictions on noncompetition agreements do not apply to an agreement by an employee not to solicit or transact business with customers of the employer. The new law is designed to cover broader types of noncompetes, but not narrowly-fashioned “non-solicitation” restrictions. These more specific restrictions can now be entered into with an employee at any time. Confidentiality agreements continue not to be covered by the statute.

The new law will not impact the continued enforceability of any noncompetition agreements entered into prior to January 1, 2008.

Many of our clients either currently use some form of noncompetition restriction or have been considering such provisions. Because of these new requirements, it is strongly recommended that we take advantage of the time between now and the end of this year to analyze how best to safeguard your valuable protectible interests while ensuring compliance with this new law.

If you would like more information about this bill or others which may impact your business, please contact Jack Cooper, a partner in Dunn Carney's employment law practice group or Randall L. Duncan, Chair of our Closely Held Business Team. We will be happy to accommodate your request.

Closely Held
Business Team

The Closely Held Business Team - Dunn Carney is dedicated to assisting business owners in navigating through the opportunities and challenges the law presents to advance each owner’s success in business. They understand the multifaceted issues business owners face each day and the need for responsive and proactive legal counsel.

Team members include:
Randy Duncan, Team leader
Bob Allen
John Barhoum
Merrill Baumann
David Buono
Brian Cable
Jack Cooper
Ken Davis
Tim Hering
Frank Hilton
Elizabeth Howard
Scott Jonsson
Robert Kerr
JoDee Keegan
Kelly Martin
David Rossmiller
Eric Smith
Kyle Stinchfield
Dan Vidas
Matt Wilmot
Bob Winger
David Zehntbauer