SMHLLAW

By Robert Swider and Steve Leasia

Oregon employers need to be aware of changes made by SB 248 which the Governor signed into law after a protracted battle in the Legislature.  This Bill makes several significant changes to two areas of Employment Law for employment agreements entered into after January 1, 2008.

The law provides that employment arbitration and noncompetition agreements are voidable unless one of two conditions is met:

(1) The employer must inform the employee of the agreement’s requirements in a written employment offer received by the employee at least two weeks before the first day of employment, or

(2) The agreement is entered into upon a bona fide advancement of the employee if the requirements are disclosed in a written notice of advancement at least two (2) weeks prior to the effective date of the employee’s advancement.  

The law also provides that other agreements, such as nonsolicitation agreements, are not subject to the bill’s requirements.

The new law establishes additional requirements for enforcement of noncompetition agreements.  Such agreements are non enforceable unless:

(1)    The employee is an individual engaged in administrative, executive or professional work who:  (a) performs predominantly intellectual, managerial or creative tasks; (b) exercises discretion and independent judgment; and (c) is paid on a salary basis.

(2)    The employer has a “protectable interest”.  A “protectable interest” means either the employee (a) has access to trade secrets; (b) has access to competitively sensitive confidential business or professional information (i.e. product development plans, product launch plans, marketing strategy or sales plans); or (c) is employed as on-air talent.

(3)    The total amount of employee’s gross salary and commissions on an annual basis at the time of termination exceeds the median family income for a family of four as determined by the United States Census Bureau. According to the Federal Register of March 28, 2007 the median family income for a four-person Oregon family will be $61,945 for 2008.                  

This new law further establishes that noncompetition agreements may not exceed two years.  The new law also permits employers to enforce an otherwise voidable noncompetition agreement for up to two years, in certain instances, if the employer compensates the employee for the time the employee is restricted from working.  The employer must pay the employee compensation the greater of an amount equal to 50% of the employee’s annual income from the employer at the time of termination or 50 percent of the median family income for a four-person family as published by the Census Bureau for the most recent year available at the time of termination.  According to the Federal Register of March 28, 2007 the median family income for a four-person Oregon family will be $61,945 for 2008.                  

It is important to note that this law is not retroactive and significantly for employers, it does not apply to a covenant not to solicit employees of the employer, or solicit or transact business with customers of the employer.   Employers can require that their employees sign these covenants, as long as they are separate from the noncompete agreements.

What Does this mean for Employers?

• Employers need to determine whether they have a "protectible interest" with respect to their departing employee (e.g. is there a valid basis for imposing a noncompetition covenant upon specific departing employees.)  They will also have to ascertain whether it is proprietary information such as trade secrets that the employer is trying to protect or valuable customer information and/or relationships.
• If an employer seeks to protect customer relationships, as is often the case for a departing sales representatives, it should consider using a separate nonsolicitation agreement that prohibits the departing employee from transacting business with the employer’s customers or soliciting the employer’s employees for a reasonable period of time.
• If an employer is trying to protect proprietary information, they will need to strictly follow and document the two-week advance notification requirement and limit the term of the noncompetition agreement to two (2) years.
• Employers can expect to pay more money to enforce noncompetition agreements against any employee who earns under about $62,000.   Of course, for employees who earn less than $62,000 at the time of their departure, the employer can elect to waive the noncompetition agreement and not make severance payments if it determines that the economic benefit does not warrant the added severance costs.
• Employers are well-advised to review the terms and conditions of their current offer letters, employment agreements, employment policies and notifications of advancement and should seek the assistance of qualified legal counsel.