← to resources

Legislative Update on Employment Non-Compete Agreements

By Shari L. Lane

Senate Bill 248 goes into effect on January 1, 2008. SB 248 has two parts:

1) Non-Competition Agreements

A non-competition agreement will not be enforceable unless:

At least two weeks before the employee begins work, you notify him/her, in writing, that s/he must sign a non-competition agreement; and
The non-competition agreement lasts for no more than two years after employment ends; and
The position is “administrative, executive, or professional”;[1] and
You have a “protectable interest,” which means the employee is going to have access to trade secrets, or other sensitive information, such as development plans, marketing strategies, etc.; and
The employee will earn more than the “median family income for a four person family.”
You may also impose a non-competition agreement upon “bona fide advancement.”

This section of the new law amends ORS 653.295, which currently allows non-competition agreements specifying that, if a former employee competes with your business, you may withhold unpaid bonuses. There is no change to that section.

The new law explicitly allows non-solicitation agreements, defined as agreements not to attempt to take your current employees or market to your current customers. As always, this prohibition is not automatic: you must include these terms in your employment agreement or your employee manual, so your employees know your expectations and acknowledge those expectations in writing.

Keep in mind that Oregon employers already have the ability, under Oregon law, to protect trade secrets and other “proprietary information.” Neither the existing law nor the new law impedes your ability to protect these interests.

2) Arbitration Agreements

An agreement to submit all employment-related disputes to arbitration will not be enforceable unless, at least two weeks before the employee begins work, you notify him/her, in writing, that agreeing to binding arbitration is a requirement of employment.

The only other time you may impose an agreement to submit such disputes to arbitration is upon “bona fide advancement.”

This section of the new law amends ORS 36.620 on arbitration agreements. There is no change to the rest of that statute, which says that an otherwise enforceable agreement to arbitrate may be found unenforceable because it is “unconscionable” (i.e. extremely unfair to one of the parties) or for any other reason that applies to contracts and agreements. It is unclear at this time how this will interact with federal arbitration laws and/or collective bargaining agreements that include arbitration requirements.

A note about both new sections: Oregon courts have interpreted “bona fide advancement” to mean more than just a new title. A change in duties, an increase in authority, and increased compensation are usually necessary to qualify as a “bona fide advancement” that will allow the imposition of a new non-competition and/or arbitration agreement.

If you have questions about these or other issues, please don’t hesitate to give me a call at 503-243-4237!

[1] There is a limited exception to this requirement, which involves agreeing to pay the employee a certain amount after employment ends.