The Oregon Legislature made several substantial changes to Oregon’s existing noncompetition law, which were enacted on May 21, 2021.
Oregon and Nevada recently amended their noncompete statutes to further limit the circumstances under which employers may enforce noncompetition covenants against ex-employees. A summary of the changes follows.
The Oregon Legislature made several substantial changes to Oregon’s existing noncompetition law (ORS 653.295), which were enacted on May 21, 2021.
The changes to ORS 653.295 apply to all noncompetition agreements executed before or after May 21, 2021. Neither the current nor former versions of ORS 653.295 apply to confidentiality or nonsolicitation agreements. ORS 653.295 exclusively pertains to “noncompetition agreements,” defined as agreements “under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes or services that are similar to the employer’s products, processes or services for a period of time or within a specified geographic area after termination of employment.”
Under the prior version of the law, a noncompetition agreement was “voidable” and unenforceable unless:
- The employer advised the employee in a written employment offer at least two weeks prior to the employee’s first day of employment that a noncompetition agreement is required, or the noncompetition agreement is executed upon a subsequent bona fide advancement;
- The employee is exempt from Oregon minimum wage and overtime laws;
- The employee makes more than the median family income for a family of four as determined by the United States Census Bureau;
- The noncompetition period does not exceed 18 months;
- The employer has a protectable interest, including when the employee has, or will have, access to trade secrets or competitively sensitive confidential information; and
- The employer provides a signed, written copy of the noncompetition agreement to the employee within 30 days after the employee’s termination of employment.
The amendments alter Oregon’s existing noncompetition law as follows:
- The law now provides that any noncompetition agreement that does not satisfy the requirements of ORS 653.295 is “void”—in the prior iteration of the law, noncompetition agreements were merely “voidable” if they did not satisfy the requirements of the law—and unenforceable. Under the amended version of the law, courts no longer have room to interpret the term “voidable” to require employees to take affirmative steps (such as notifying the employer that the employee considers the contract to be void) in order to render the agreement unenforceable. ORS 653.295(1).
- Under the revised law, the maximum post-employment restrictive period is now 12 months—reduced from 18 months. ORS 653.295(7).
- Under the revised law, a noncompetition agreement will only be enforced against an employee who earns $100,533 or more in salary and commissions (adjusted annually for inflation) “immediately preceding the calendar year of the employee’s termination.” Under the prior version of the law, a noncompetition agreement could be enforced against an employee who earned “gross salary and commissions, calculated on an annual basis, at the time of the employee’s termination [that] exceeds the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee’s termination.” ORS 653.295(1)(e).
- Under the prior version of the law, an employer could impose a noncompetition agreement on an employee who would otherwise be exempt under the threshold compensation requirements if the employer paid the employee, for the time the employee was restricted from working, the greater of compensation equal to at least 50 percent of (a) the employee’s annual gross base salary and commissions at the time of the employee’s termination; or (b) the median family income for a four-person family, as determined by the United States Census Bureau at the time of the employee’s termination. The revised version of the law now provides that the employer can only exercise this option if it “agrees in writing” to pay the employee, for the time the employee is restricted from working, the greater of (1) compensation equal to at least 50 percent of the employee’s gross base salary and commissions at the time of the employee’s termination; or (2) $100,533 (adjusted annually for inflation) (consistent with revised subsection (1)(e), above). ORS 653.295(7). The revised version of the law does not specify whether the agreement “in writing” must be made at the time the noncompetition agreement is entered into or at some later point (i.e., at the time the employee’s employment is terminated). The revised version of the law also does not indicate the time frame for the payment (i.e., whether payment must be made “upfront” in a lump sum, whether it can be made in intervals during the period of the restriction, or whether it can be made over a longer period of time).
Nevada also recently enacted amendments to its statute governing noncompetition agreements (NRS 613.195), effective May 25, 2021.
The amendments do not alter the statute’s basic provisions, under which a noncompetition covenant is deemed void and unenforceable unless it (1) is supported by valuable consideration; (2) does not impose any restraint that is greater than required for the protection of the employer; (3) does not impose undue hardship on the employee; and (4) imposes restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.
The substantive changes to the law under the amendments include:
- Explicitly banning the application of noncompetition agreements to employees “paid solely on an hourly wage basis, exclusive of any tips or gratuities.” NRS 613.195(3);
- Adding a fee-shifting provision providing that a court “shall” award an employee reasonable fees and costs if the court finds that the covenant impermissibly: (1) applies to an hourly wage employee; and/or (2) restricts the employee from dealing with former customers that the employee did not solicit. NRS 613.195(7);
- Amending a provision of the law that bars noncompetition covenants restricting a former employee from providing services to former customers under the circumstances described in NRS.613.195(2)(a)-(c), to clarify that an employer is prohibited from bringing an action to enforce such a restriction; and
- Clarifying that a court “shall” revise an overly broad restrictive covenant to render it reasonable, regardless of whether the employer brings an action to enforce the restriction or an employee brings an action to challenge it. NRS.613.195(2).
For More Information
If you have any questions about this Alert, please contact Lawrence H. Pockers, Shannon Hampton Sutherland, Emily Kowey Roth, any of the attorneys in our Non-Compete and Trade Secrets Group, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
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