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Q: I’ve heard there are some potentially significant changes occurring in the Oregon Legislature regarding noncompetition agreements. What is being proposed?

A: You heard right. The Legislature is considering several significant changes to noncompetition law.
Under current law, a noncompetition agreement is enforceable, assuming it is otherwise reasonable and necessary to protect a legitimate business interest, only if it was signed upon initial employment or a bona fide advancement.
The courts have held initial employment, to be safe, means within the first three days.
Bona fide advancement means a significant promotion. It cannot just be more money. The employee must usually receive a change in job title, responsibilities and compensation. In other words, the courts are looking for the employer to show them something changed in the employment that now necessitates a noncompetition agreement.
Earlier this year, the Oregon Senate, in Senate Bill 248, proposed to make noncompetition agreements void unless the terms of the agreement were communicated to the employee at the time of the initial offer of employment. The Senate Bill would also have made noncompetition agreements unenforceable if the employee were terminated without cause.
Although these potential changes were significant enough to cause practitioners across the state to take notice, they paled in comparison to what the Oregon House of Representatives proposed.
The House Judiciary Committee unanimously approved multiple amendments to the Senate bill. Under the House’s changes, a noncompetition agreement is voidable unless the employer “informs the employee in a written employment offer received by the employee at least two weeks before the first day of the employee’s employment that a noncompetition agreement is required as a condition of employment” or it is entered into upon a subsequent bona fide advancement. In other words, the “initial employment” test has been replaced with an “at least two weeks before initial employment” test.
This will eliminate the use of noncompetition agreements for employees who are hired immediately upon their offer of employment, unless the employer is willing to have them sit out for at least two weeks. However, this is just the start of the bad news for employers.
The House Judiciary Committee also decided noncompetition agreements should only be valid for people who are overtime-exempt administrative, executive or professional employees. Accordingly, commissioned salespeople will no longer be eligible for noncompetition agreements under the new proposal. This proposal alone should send shockwaves through the business community, as it would affect any business that has invested heavily in training its sales force based, at least in part, upon its reliance on noncompetition agreements. But the trouble doesn’t end there.
Although the courts have always required the employer to have a “protectable interest” in order to enforce a noncompetition agreement, the House Judiciary Committee decided it was in the best position to define what constitutes a protectable interest, and it limited that interest to trade secrets or “competitively sensitive confidential” information that does not rise to the level of a trade secret. The House also tossed in employees who are employed as an on-air talent by an employer in the business of broadcasting,” but even then only if the employer has expended resources greater than 10 percent of the employee’s salary to train the employee or to promote the employee through a media service the employer does not control.
In yet another effort to limit the usefulness and increase the confusion surrounding the use of noncompetition agreements, the Judiciary Committee added that, in order for the agreement to be enforceable, the employee’s salary and commissions must exceed the median family income for a family of four, as determined by the U.S. Census Bureau. However, the income restriction does not apply to the “on-air” talent.
In what is likely one of the most unworkable proposed amendments to the bill, the Judiciary Committee determined that, regardless of the employee’s salary or access to confidential information, an employer may enforce a noncompetition agreement if it is willing to pay the employee the greater of 50 percent of the employee’s gross salary and commissions or 50 percent of the median family income for a family of four throughout the entire noncompetition period.
Finally, the amendments would limit all noncompetition agreements to two years, regardless of the specific facts or circumstances that may necessitate a longer period.
The only good news for employers is that, when the Judiciary Committee presented its proposed revisions, it was met with opposition. And the amendments have been referred to the Committee on Elections, Ethics and Rules. The result may be that a Senate bill most practitioners thought would easily pass the Legislature ends up stuck in the House because of these proposed amendments.
Either way, this is something all employers that use noncompetition agreements must watch carefully. And they may want to consider contacting their representatives to give their opinions regarding these proposed changes.

Mitch Baker is of counsel at the Portland office of Fisher & Phillips, one of the United States’ largest law firms that represent employers in labor and employment matters. Baker specializes in labor and employment law and employment discrimination. He can be reached at 503-242-4262 or [email protected]. Fisher & Phillips’ Web site is at www.laborlawyers.com.