Oregon Tightens Requirements for Non-Compete Agreements

December 17, 2021
Oregon Tightens Requirements for Non-Compete Agreements

Lawmakers have taken aim at Oregon non-compete laws, making changes that go into effect on January 1, 2022. The legislators have increased the minimum salary required for an enforceable agreement and have reduced the length of time the agreements can be valid. Non-compete agreements are contracts that prevent workers from going to work for a competing employer. The agreements generally cover a certain period of time and geographic region. For example, a worker and an employer might agree that the former employee can not work for a competitor in a certain state for up to one year. Employers use the agreements to protect their trade secrets and other confidential and proprietary information. Nearly 1/5 of United States workers, including a significant number of low-wage workers, are covered by the agreements, according to a 2016 blog post from the Obama White House. Employers say non-competes keep them from facing competition by former employees who go on to work for a competing business or who start a rival business. Workers argue the agreements restrain their ability to support themselves and interfere with their mobility. Courts generally have ruled that the agreements are enforceable as long as they don’t extend too far in the future or cover too wide a geographic area. Democratic Governor Kate Brown signed the Oregon bill into law on May 21, 2021.

Increased salary minimum

Non-compete agreements in the Beaver State have a minimum salary requirement. Under the law in its current form, a non-competition agreement is not valid unless the employee’s annual gross salary and commissions “calculated on an annual basis, at the time of the employee’s termination exceeds the median family income for a 4-person family, as determined by the U.S. Census Bureau for the most recent year available at the time of the employee’s termination.” Thus, the minimum salary required for a valid non-compete agreement is about $97,311.

In 2022, an employee's salary must be at least $100,533 in order for a non-compete agreement to be valid.

The required salary threshold for an enforceable agreement has been increased. Starting in 2022, an employee’s salary at the time of termination must be a minimum of $100,533. Going forward, the salary threshold will adjust annually to track inflation.

Maximum length of an Oregon non-compete agreement

Under the existing Oregon law, non-competition agreements cannot exceed 18 months. The amendments reduce the maximum term to 12 months.

Void, not voidable

Presently, an agreement that fails to meet the statutory requirements is “voidable,” which means that an employee must take steps to cancel the agreement. Under the new law, Oregon non-compete agreements that do not satisfy statutory requirements such as the minimum salary will be “void and unenforceable.” The changes mean that non-compliant agreements are automatically void and unenforceable by the employer, regardless of whether the employee cancels the agreement.

Writing requirement for “garden leave” option

The “garden leave” option that allows an employer to enforce an otherwise noncompliant agreement remains. The “garden leave” provision allows employers to enforce a non-compete agreement against a former employer for up to one year under certain circumstances. The agreement must be in writing and the former employee must be paid either:

  1. At least 50% of their gross annual base salary and commissions at the time of termination; or
  2. 50% of $100,533.00 in 2021 dollars adjusted for inflation – whichever is greater.

Currently, no writing is mandatory.

Some existing limitations still in place

The changes have not affected the existing notice requirements. Employers still have to inform prospective employees at least 2 weeks before the first day of employment that an Oregon non-compete agreement is necessary as a condition of employment. In addition, employers must provide employees with “a signed, written copy of the terms of the non-competition agreement” within 30 days after the date of discharge.

Agreements not affected by Oregon non-compete law

Legal experts have noted that the changes to Oregon’s existing laws on non-compete agreements will not impact other types of restrictive provisions, such as confidentiality and non-solicitation agreements.

Other states modify non-compete agreements

Employee-friendly reforms of non-compete agreements have been a priority for many state legislatures in recent years. Nevada recently amended its laws on non-compete agreements. The changes went into effect on October 1, 2021.

Non-compete agreements are not allowed for hourly employees in Oregon.

The Silver State now forbids employers from making non-compete agreements with hourly employees. Nevada also mandated that a non-compete agreement is unenforceable:

  • If it imposes restraints on the former employee that are greater than necessary to protect the employer
  • If it imposes an undue hardship on the employee
  • Unless it is supported by consideration, which is something of value, such as money
  • If it imposes restrictions on the former employee that are not reasonable in view of the consideration the employer is providing

Maryland lawmakers modified their laws on non-compete agreements in 2019 as did Maine, New Hampshire, Rhode Island, and Washington.

The feds are examining non-compete agreements

Non-compete agreements have been in the federal spotlight. President Joe Biden issued an Executive Order on July 9, 2021, directing the Federal Trade Commission to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit workers’ mobility.” The Obama Administration weighed in on non-compete agreements. In 2016, the Obama White House published a report on non-compete contracts in employment, concluding that the agreements “can impose substantial costs on workers, consumers and the economy more generally.” Congress is also considering taking action on non-compete agreements. A bipartisan bill, “The Workforce Mobility Act of 2021 (WMA)” was introduced in both the House of Representatives and U.S. Senate in February 2021. The proposed legislation would:

  1. Limit the use of non-competes to situations where there’s a sale of a business or dissolution of a partnership
  2. Authorize the U.S. Department of Labor to take steps to educate the general public about the limitations surrounding the use of non-compete clauses
  3. Give workers a private right of action that would allow them to sue for violations of the WMA

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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