• New Law Affecting Arbitration and Noncompetition Agreements in Oregon Became Law Today
  • August 9, 2007 | Author: Tamara E. Russell
  • Law Firm: Miller Nash LLP - Portland Office
  • Governor Kulongoski signed a bill into law today that affects the ability of employers to enforce noncompetition and arbitration agreements with employees in Oregon.

    The most significant changes to the law, which applies to noncompetition and arbitration agreements entered into after January 1, 2008, are as follows:

     

    Current Law—Arbitration Agreements

    New Law—Arbitration Agreements

    When Presented: Agreements to arbitrate claims or disputes could be presented to employees at any time before or during employment.

    All agreements to arbitrate claims or disputes must be presented to a job applicant in a "written employment offer." Further, the "written employment offer" containing the agreement to arbitrate must be "received" by the employee at least two weeks before the first day of the employee's employment.

    Agreements to arbitrate claims or disputes may be presented to current employees, but will not be enforced unless entered into at the time of a "bona fide advancement" (promotion, etc.).

     

    Current Law—Noncompetition Agreements

    New Law—Noncompetition Agreements

    When Presented—At Time of Hire: Noncompetition agreements may be entered into at the "initial" employment of the employee with the employer.

    The employer is now required to present the noncompetition agreement as part of a "written employment offer" to a job applicant, and the applicant must receive the offer (including the proposed noncompetition and/or arbitration agreement) at least two weeks before the first day of the employee's employment.

    When Presented—Upon Bona Fide Advancement: A noncompetition agreement may be entered into with an existing employee when the employee receives a "bona fide advancement," such as a raise in salary, improved benefit package, or some other form of additional compensation or consideration in addition to an actual change in the employee's job status or duties performed.

    No change.

    Enforceability Due to Employee's Gross Salary: No similar provision under current law.

    An otherwise valid noncompetition agreement may not be enforced against an employee if the employee's gross salary and commissions at the time of his or her termination does not exceed the median income for a four-person family in Oregon (currently $61,945).

    Requirement of "Protectable Interest": Opinions issued by courts suggested that the employer needed to demonstrate a legitimate protectable interest in order to enforce a noncompetition agreement.

    Under the new law, the employer must demonstrate that it has a "protectable interest" in order to enforce a noncompetition agreement. A "protectable interest" exists when, among other reasons, the employee subjected to the noncompetition agreement has access to trade secrets or "competitively sensitive confidential business or professional information that would not qualify as a trade secret, including product development plans, product launch plans, marketing strategy or sales plans."

    "Reasonable" Time Restrictions: Any time restrictions in a noncompetition agreement must be "reasonable" in terms of limiting a former employee's ability to compete. "Reasonable" time restrictions were decided on a case-by-case basis in the courts.

    Noncompetition agreements entered into after January 1, 2008, may not limit competition for more than two years.

    "Reasonable" Geographic Restrictions: Any geographic restrictions in a noncompetition agreement must be "reasonable" in terms of limiting a former employee's ability to compete. "Reasonable" geographic limitations were decided on a case-by-case basis in the courts.

    No change.

    Payment of Money to Enforce Agreement: No similar provision under current law.

    Under certain circumstances, an employer can enforce an otherwise voidable noncompetition agreement if the employer compensates the employee: the employer must pay either 50 percent of the employee's annual gross base salary or 50 percent of the median income for a four-person family, both of which are calculated at the time of the employee's discharge. Thus, for an employee making less than $61,945, the employer would have to pay $30,522.50 to enforce an otherwise voidable noncompetition agreement.

     

    What This Means for Employers

    Once again, the Oregon Legislature has placed additional and specific restrictions on the ability of employers to require employees to arbitrate employment claims and to prevent employees from unfairly competing with them after their employment terminates. Now more than ever, it is important for employers to carefully consider well in advance of employment whether they wish to have arbitration and noncompetition agreements with their employees and to ensure that any such agreements comply with applicable legal requirements.