This article was originally published in the May 15, 2019 edition of the Cascasde Business News.
Client lists and relationships are integral to many businesses’ ongoing success. Retention of talented employees is equally important. For these reasons, many employers, including in the construction industry, use non-competition and non-solicitation clauses to keep former employees from opening up competing businesses or going to work for competitors. However, in Oregon, there are limits to the enforceability of such clauses. This article will explore some aspects of those limits and how deft employers and employees can negotiate them. That being said, this is a complicated area of the law and there are often practical considerations that this article could not possibly address. I recommend that employers or employees faced with questions about such agreements contact an attorney with knowledge and experience in this area.
First, we should define a non-competition clause and a non-solicitation clause. A non-competition clause (often just called a “non-compete”) bars a former employee from competing against his or her former employer. A non-solicitation clause or agreement is less restrictive. A non-solicitation clause forbids a former employee from soliciting or working with clients of the former employer.
Oregon limits the scope of legally enforceable non-competition and non-solicitation agreements to protect employees—and trade generally—from being stifled by overly restrictive agreements. ORS 653.295 is the specific statute that governs these clauses, but does not limit “a covenant not to solicit employees of the employer or solicit or transact business with customers of the employer” (in other words, a true non-solicitation agreement). ORS 653.295 provides that a non-competition agreement is “voidable” unless it complies with several requirements involving when and how it was signed, the type of business involved, and the length of time the non-compete is in effect (18 months is the maximum allowed). With this in mind, an employee faced with an overly broad non-compete may think he or she can safely violate the clause, because it is voidable.
Not so fast. In 2018, the Oregon Court of Appeals decided a case that should give that hypothetical employee pause. In Oregon Psychiatric Partners, LLC v. Henry, 293 Or. App. 471 (2018) the court looked at the non-compete signed by a psychiatric nurse practitioner. Although the court determined that the non-compete was overly broad, it did not void it entirely. The agreement contained a severability clause, which states that if an agreement is not enforceable in full, the enforceable part survives. Under ORS 653.295 and the severability clause, the court determined that the agreement was enforceable to the extent of a true non-solicitation agreement.
In that case, this was good news for the former employer, however that may not be the result in all situations. In this case, the non-compete could be read, in part, as a non-solicitation agreement and included some non-solicitation language, so the court limited it to that. It is not clear how courts would interpret other non-competition agreements without explicit non-solicitation language.
Because of uncertainty involving these clauses, non-competition and non-solicitation clauses are a hot area for litigation. Even where the clause is clearly overly broad, there is often a question about how and whether it could be interpreted consistently with ORS 653.295. In other words, a very broad clause may be totally void or may be enforceable to a much less extent.
If you are a business owner with sensitive, proprietary information, processes, technology, or client lists, you should protect those assets. A carefully constructed non-compete or non-solicitation agreement can do that and save you from expensive litigation due to an overly broad clause.
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