Let’s face it. Noncompetition agreements have a reputation for being unenforceable. While it’s true that a court won’t go out of its way to enforce a bad agreement, noncompetition agreements are still a powerful tool to protect your business. The key to winning a noncompete case is to strictly comply with all legal requirements. Beginning January 1, 2022, there are several new hurdles for employers. Failure to follow these rules will be a dealbreaker on an otherwise enforceable agreement.
The new legal requirements are in addition to a long list of conditions that the Oregon legislature and courts have placed on the enforceability of covenants not to compete. Under the new law:
• The restrictive period cannot be longer than 12 months from the employee’s termination from employment (down from 18 months under current law).
• The employee must make at least $100,533 per year in gross compensation. This includes salary and commissions. The minimum salary threshold will be adjusted annually for inflation (this is a change from
the prior difficult to calculate salary number based on the U.S. Census).
• The agreement must be in writing (it has always been hard to enforce a verbal noncompete anyway).
• If the agreement does not comply with these and other statutory requirements, it is “void” without any further action needed by the former employee.
The new requirements only apply to noncompetition agreements signed on or after January 1, 2022. So, if your current employees are bound by an enforceable agreement, don’t ask them to sign a new one.
These requirements typically only apply to agreements to restrict a former employee from working for a competitor or working within a given geographic radius. The rules technically don’t apply to agreements to limit the former employee from soliciting or transacting business with your customers or soliciting your employees. However, an overly restrictive nonsolicitation agreement can end up being subject to the statutory restrictions if the employer is not careful.
In addition to the changes for 2022, there are a number of other legal requirements that continue to be in place:
• The employee’s job must fit one of the FLSA “white collar” exemptions from overtime wages;
• The employee must be notified in a written employment offer received at least two weeks before the employee starts work that a noncompetition agreement is required as a condition of employment. In the
case of a promotion, the noncompete must sync up with the timing of the promotion.
• The former employee must have had access to customer relationships, trade secrets or other sensitive and confidential business information worthy of protection.
At termination of employment, you must provide the employee with a signed, written copy of the noncompetition agreement. That means you will need to be able to find it and remember to hand it to the employee at termination, ideally in exchange for a signed receipt. Failure to timely provide a signed copy to the employee is fatal when trying to enforce the agreement.
Some (but not all) of the above requirements can be avoided by paying the employee the greater of either 50% of the employee’s annualized gross salary and commissions or about $4,200 per month during the noncompete period you are trying to enforce. These payments are typically known as “garden leave” (i.e., getting paid to tend to, or relax in, your garden).
Legal review is key to putting enforceable noncompetition agreements into place and having a winning argument if the agreement is challenged or litigated. Your company should adopt strict procedures regarding offer letters, timing, keeping signed copies, and providing signed copies at termination. If you don’t do everything perfectly, a noncompete can be difficult to enforce. If you are careful to follow all steps required by the law, noncompetition agreements are a powerful tool to protect your business and your client relationships.
Randall Sutton is a partner in the Employment Law & Litigation practice group. Randy is also a member of the Health and Wine & Vine industry groups. The information in this article is not intended to provide legal advice. For professional consultation, please contact Randy at email@example.com at Saalfeld Griggs PC. 503.399.1070.
The contents of this publication are current as of December 2, 2021, and should not be construed as legal advice. Information in this publication may only apply in certain states. Readers should not act upon information presented in this publication without individual professional counseling. Receipt of this publication does not constitute or create an attorney-client relationship. The material in this publication may not be reproduced without the written permission of Saalfeld Griggs PC. © 2021 Saalfeld Griggs PC