Employers with noncompetition agreements in Oregon and Washington must take note of the changes enacted by the legislature in both states. Noncompetition provisions are restrictive covenants, which can appear on their own in an agreement, but are usually part of a broader employment or nondisclosure agreement. These covenants, which restrict an employee’s ability to work with a company that competes with or that sells similar services or products as their former employer, are generally disfavored as a restraint on trade.
Oregon law allows for noncompetition provisions with certain restrictions. Noncompetition provisions are “voidable” unless they meet specific requirements, including that:
- The employer inform the employee in a written employment offer received by the employee at least two weeks before the first day of employment that a noncompetition is required, or where a noncompetition agreement is entered into upon a subsequent bona fide advancement of the employee by the employer;
- The person is a salaried, exempt employee;
- The employer has a protectable interest, such as access to trade secrets, or competitively sensitive confidential business or professional information; or is employed as on-air talent by a broadcasting employer who spent resources to develop, improve, train or publicly promote the employee;
- The employee’s total 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 four-person family, as determined by the U.S. Census Bureau, which was approximately $64,610 based on the 2017 report.
This year, the Oregon legislature added a new restriction, that “[w]ithin 30 days after the date of termination of the employee’s employment, the employer provides a signed, written copy of the terms of the noncompetition agreement to the employee.” This new requirement applies to noncompetition agreements entered into on or after the effective date of the revisions to the Oregon statute, ORS 652.295, which is January 1, 2020.
Washington employers, previously free of statutory constraints on noncompetition provisions, must also now deal with new restrictions. The new Washington law, which also will take effect on January 1, 2020, will apply to all agreements, even those agreements signed prior to the effective date. The statute will apply to employees who earn $100,000 or more per year and independent contractors who earn $250,000 or more, and these dollar amounts will be adjusted annually for inflation.
The law makes a noncompetition covenant “void” and “unenforceable against an employee” unless the employer discloses the terms of the covenant in writing to the prospective employee no later than the time of the acceptance of the offer of employment. The statute also requires that an employer inform an employee at the time of acceptance of an offer of employment if it intends to require the employee to sign a noncompetition covenant at a future date due to anticipated changes in the employee’s compensation to $100,000 per year or more. However, an employer who fails to provide this advance notice at the commencement of employment may remedy that failure by providing additional “independent consideration” for the covenant.
Noncompetition provisions will also be limited to 18 months unless an employer can provide by clear and convincing evidence that a longer duration is necessary to protect the party’s interest or goodwill. The statute also includes an additional provision that noncompetition covenants are not enforceable if an employee’s position ends as the result of a layoff, unless the employer provides compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement of the noncompetition provision less compensation that the employee earned through other subsequent employment.
The Washington law prohibits employers from requiring that a Washington-based employee litigate the enforceability of the agreement in a court that is outside of the state of Washington.
The Washington statute also applies to franchisors and prohibits any restriction or restraint in any way on a franchisee soliciting or hiring any employee of a franchisee of the same franchisor or from soliciting or hiring an employee of the franchisor.
Finally, the new Washington statute prohibits employers from having restrictions on moonlighting for an employee who earns less than twice the applicable state minimum hourly wage, unless the employer can establish that the additional services rendered by the employee will raise safety issues for the employee, coworkers, or the public, or interfere with the reasonable and normal scheduling expectations of the employer. The employee still will owe a common law duty of loyalty to the employer, and therefore, presumably may not work for a competitor as part of their moonlighting efforts.
Neither the Washington nor the Oregon statutes apply to nonsolicitation or nondisclosure provisions, or to restrictions related to the sale of a business.
Oregon employers should take note of the new requirement to provide a copy of the agreement containing a noncompetition covenant, and make this part of their exit interview procedures.
Washington employers must immediately revise their noncompetition agreements and evaluate the enforceability of their current agreements based upon the compensation of the employees under those agreements. Washington employers should also revise their employee handbooks if they contain reference to requirements that restrict employees from working second jobs.
Schwabe, Williamson and Wyatt has attorneys licensed in both Oregon and Washington and can provide assistance and guidance to employers with questions.