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An Oregon Court of Appeals decision interpreting state noncompetition law raises more questions than it answers. The opinion in Bernard v. S.B. Inc. is just as important for employers hiring employees as it is for employees seeking employment or planning to leave employment and work for a competitor.

Although Oregon enforces noncompetition agreements under certain circumstances, it also requires employers to meet a number of requirements. An employer that fails to meet these requirements may find itself presented with a voidable noncompete agreement. But Bernard also appears to hold that an employee who relies upon the fact that such an agreement is voidable may be surprised to learn that the voidable agreement will nonetheless be enforced by the court.

In Bernard the employee was not given 14 days鈥� written notice in advance of hiring that a condition of her employment was that she would be bound by a noncompetition restriction. The 14-day notice is one of the conditions that Oregon law requires, and absent such notice the noncompetition agreement is voidable.

When the employee voluntarily left her employment and went to work for a competitor, the employer reminded the employee of her noncompete. The employee then filed a lawsuit raising various claims asserting that it was improper for the employer to threaten to enforce the noncompete for which notice had not properly been given. She relied upon ORS聽653.295, which provides in part that a noncompetition agreement is voidable and may not be enforced by an Oregon court unless:

(a) The employer informs the employee in a written employment offer received by the employee at least two weeks before the start of the employee鈥檚 employment that a noncompetition agreement is a condition of employment;

(b) The employee meets the requirements for salaried exempt employees;

(c) The employer has a protectable interest because the employee has access to trade secrets or to competitively sensitive confidential business information.

The employee interpreted the statute to set up an absolute bar to the employer鈥檚 invocation (in or out of court) of any noncompetition agreement that was executed without the required two weeks鈥� notice. The employer argued that the agreement was 鈥渕erely voidable, not void,鈥� and that the language of the statute that the noncompetition agreement 鈥渕ay not be enforced鈥� must be read in conjunction with the word 鈥渧oidable.鈥� The court concluded that under some circumstances, a voidable noncompete may be enforced.

How did the court get to this result? It observed that the pre-2007 statute used the term 鈥渧oid鈥� until the statute was amended in 2007 to read 鈥渧oidable.鈥� It also noted that the amendments narrowed the class of employees who may be required to execute noncompetition agreements, limited the duration of such agreements to two years following termination, and required that prospective employees be given two weeks鈥� advance notice that a noncompetition agreement would be a condition of employment.

The court went on to state that although the change from 鈥渧oid鈥� to 鈥渧oidable鈥� is not addressed in the legislative history, the legal consequences of the change evidenced a legislative intent (perhaps in exchange for restricting the permissible scope of noncompetition agreements in narrowing the class of eligible employees) to treat noncompetition agreements 鈥� even though they do not strictly comply with the new statutory requirements 鈥� as presumptively valid rather than void ab聽initio.

In short, the court concluded that the employee鈥檚 failure to show that she had taken steps to void the noncompetition agreement precluded her claims of interference. Because the agreement had not been voided at the time that the employer sought to invoke the noncompetition restriction, the agreement was therefore valid and remained in effect. As a result, the employer鈥檚 actions in contacting the employee and her new employer to remind them of the employee鈥檚 noncompete were not wrongful as a matter of law.

Missing from the opinion is a statement of when the employee must take steps to void the voidable noncompetition agreement and what those steps are. Although the case arose under quirky facts, the opinion appears to suggest that employers with voidable agreements may enforce them in litigation if the employer raises a defense in litigation before the employee takes 鈥渟teps鈥� to void the agreement (whatever those steps may ultimately be). Departing employees put themselves at risk unless they surface their intention to void the agreement or take steps to void the noncompete. This may be of concern to an employee who hopes to leave quietly, not attract attention, and join a competitor.

If an employee has not taken steps to 鈥渧oid鈥� a voidable noncompete and the employer has done nothing to invoke the noncompete upon the employee鈥檚 departure, then under such a scenario the enforceability of the agreement could turn upon whether the employee is the first in time to void the agreement by putting the employer on written notice that the noncompete is void or by winning the 鈥渞ace to the courthouse鈥� by filing a declaratory judgment action seeking a court order declaring the agreement to be void.

Alternatively, the employer might be successful in enforcing the voidable noncompete agreement by acting first to threaten enforcement of the noncompete or suing to enjoin violation before the employee has taken any action to void the noncompete.

It is possible that the May 2015 decision in Bernard v. S.B. Inc. may be appealed.

Richard Hunt is a partner at Barran Liebman LLP. He represents employers in employment law matters, including noncompetition litigation. Contact him at 503-276-2149 or [email protected].