Non-competition agreements, also known as “covenants not to compete” or “non-competes,” can be useful for employers whose employees could seriously harm their business by leaving and becoming competitors. This is often the case with high-level executives who know everything about their companies’ internal workings and with salespeople in a defined market who could use their former employers’ customer contacts to take business with them to a new venture.
Despite this protection for employers, there is also a strong public policy in favor of letting people freely pursue employment. To balance these conflicting interests, some states, including Oregon, have enacted laws limiting when an employer can use a noncompetition agreement.
In Oregon, a non-compete is not valid unless it meets certain requirements:
- Either the employer must give the employee a written offer stating that a noncompetition agreement is required as a condition of employment at least two weeks before the employee starts work OR the noncompete must be entered at the same time that the employee receives a bona fide advancement;
- The employee must do administrative, executive, or professional work consisting of intellectual, managerial or creative tasks, must exercise discretion and independent judgment, and must be paid based on a salary;
- The employer must have a protectable interest, including trade secrets [link back to Trade Secrets post] and other confidential information; and
- The employee must earn more than the median family income for a four-person family.
In addition to these requirements, a noncompetition agreement cannot last longer than two years after the employee has stopped working for the employer. Finally, even if the employee does not meet the salary requirements, an employer can still use a noncompete if it continues to pay the employee during the term of the noncompete.
Non-competition agreements are not the same as confidentiality agreements or nondisclosure agreements. Although all three can be found within an employment contract, it is important to understand the differences. Especially with noncompetition agreements, which will be invalid if not done correctly, it is always a good idea to have an employment lawyer review your employment agreements to make sure you and your employees are well protected.