BY PETER S. HICKSThis article originally appeared in the January 18, 2017, edition of the Cascade Business News.
The beginning of the new year presents a good opportunity for employers to evaluate the security of their customer and employee relationships and confidentiality of their company and client information and trade secrets. The following is a review of the agreements, or “restrictive covenants,” potentially available to employers to most effectively protect their substantial business investments and resources.
A noncompetition agreement is defined in Oregon as “an agreement, written or oral, express or implied, between an employer and employee under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes or services that are similar to the employers products, processes or services for a period of time or within a specified geographic area after termination of employment.” ORS 653.295(7)(d).
Although noncompetition agreements provide the broadest protection for employers, such agreements are generally disfavored because they can effectively prevent an employee from working in their chosen profession for a significant period. Oregon has therefore adopted statutory limitations for all noncompetition agreements including limiting their duration to eighteen months and requiring that the employee’s compensation exceed the median family income for a four-person family. New employees must be provided with the agreement in writing two weeks before the first day of employment, or the agreement is voidable. ORS 653.295(1)(a)(A). For existing employees, continued employment alone is not adequate consideration to support the noncompetition agreement. Existing employees must receive a “subsequent bona fide advancement,” likely including a promotion and raise, and have access to trade secrets or competitively sensitive confidential business or professional information. ORS 653.295(1)(a)(B).
Nonsolicitation agreements prevent an employee from soliciting other employees or soliciting or transacting business with customers or prospective customers of an employer. Like a noncompetition agreement, a nonsolicitation agreement is intended to provide the employer with a period of time to protect their customer relationships after a departing employee leaves. Significantly, nonsolicitation agreements in Oregon are not subject to the same restriction as noncompetition agreements and are considered a far more reasonable means of protecting an employer’s legitimate business interest. ORS 653.295(4)(b). Nonsolicitation agreements are not subject to the minimum compensation requirement and are therefore applicable to a broader range of employees. In addition, they can be provided to new employees less than two weeks before the first day of employment and to existing employees without a subsequent bona fide advancement.
Confidentiality and Non-Disclosure Agreements:
Like nonsolicitation agreements, confidentiality and nondisclosure agreements are not subject to the noncompetition restrictions. ORS 653.295(5). Such agreements provide an effective means of protecting both company and customer information, clearly indicating that any such information, including client lists or company databases, are property of the employer. In addition to providing a sense of security for your customers, they also can serve as a basis for supporting future claims for misappropriation of trade secrets or company data. As with nonsolicitation agreements, confidentiality and nondisclosure agreements do not necessarily require additional consideration and continued employment may be enough to support enforcement of such agreements.
In evaluating the potential restrictions to adopt, consider the uniqueness of your industry and your production process or business practices. Keep in mind that the restriction should be appropriately tailored to protect your investment and interests, while not preventing the employee from obtaining some form of gainful employment consistent with their skills and abilities. If you overreach, a court is unlikely to uphold the restriction. Be sure to therefore consult with a qualified professional to most appropriately construct and draft the protection you chose to implement.