Changes Coming to Oregon Noncompete Agreements
On May 21, 2021, Oregon Governor Kate Brown signed Senate Bill 169, amending Oregon’s statute governing employee noncompete agreements, ORS 653.295. Effective January 1, 2022, employee noncompete agreements entered on or after that date will need to comply with four notable changes under the modified statute.
Unlawful Noncompetition Agreements are Void Instead of Voidable
Under the current version of ORS 653.295, a noncompete agreement that fails to satisfy the requirements of the statute is voidable rather than void—meaning that an employee bears the burden of taking some affirmative step to demonstrate their intent to void an unlawful noncompete agreement. Under the new iteration of the statute, noncompete agreements that fail to comply with all of the requirements of ORS 653.295 will be rendered “void and unenforceable,” regardless of what steps an employee does or does not take to void the unlawful agreement.
Revised Minimum Salary Requirements
Currently, for a noncompete agreement to be valid, employees must earn a salary that exceeds the median income for a four-person family, as determined by the U.S. Census Bureau. Moving forward under the amended statute, an employee’s annual gross salary must exceed $100,533 at the time of the employee’s termination, and this compensation amount will be adjusted annually for inflation.
Reduced Limit on Post-Employment Restriction Period
The current maximum period for post-employment restrictions in a noncompete agreement is 18 months, and any restricted period that exceeds 18 months is voidable rather than void. With the amendments to the statute, the period for post-employment restrictions is limited to 12 months, and any post-employment restriction period that exceeds 12 months is rendered void and unenforceable.
“Garden Leave” Option for Non-Qualifying Employees
Under the current statute, an employer can impose a noncompete agreement on an otherwise non-qualifying employee—that is, an employee that is not paid on an exempt, salary basis, or an employee who is not paid the statutory minimum compensation mentioned above—by use of the statute’s “garden leave” option. Using this option, an employer can unilaterally enforce a noncompete agreement on a non-qualifying employee by paying the employee during the restricted period: (1) a minimum of 50% of the employee’s gross annual salary at the time of the employee’s termination; or (2) 50% of the median income for a four-person family, as determined by the U.S. Census Bureau.
The option to enforce noncompete agreements against non-qualifying employees remains available to employers under the amended statute. To exercise this option an employer will need to confirm, in writing, payment to the employee that is the greater rate of either: (1) 50% of the employee’s gross annual salary at the time of the employee’s termination; or (2) 50% of $100,533, as adjusted for inflation.
Outside of the amendments, several existing limitations on noncompete agreements will remain unchanged under the new version of ORS 653.295. These continuing limitations include—among others—a requirement to notify employees in writing two weeks before the first day of employment that a noncompetition agreement is required as a condition of employment, and providing the employee with “a signed, written copy of the terms of the noncompetition agreement” within 30 days of termination of employment.
Finally, the limitations set out by ORS 653.295 do not apply to all types of restrictive employment agreements. Most notably, under the current and amended statute, the law only applies to employee noncompete agreements and does not apply to confidentiality agreements or agreements not to solicit an employer’s customers or employees.