What Oregon’s latest blow against non-compete agreements could mean for employers.
Non-compete agreements, which prohibit a terminated employee from finding work with a competitor for a period of time, have become increasingly prevalent over the past decade. Nearly 20% of working people are bound by a non-compete agreement, and while higher-earning jobs tend to be the ones most often requiring a non-compete, nearly 12% of lower-income jobs require one as well.
The use of non-competes are so widespread, even nonprofit volunteers are asked to sign away their job-seeking freedom for the opportunity to work.
These types of contracts are of particular interest to states with strong tech sectors, since employment restrictions are felt more sharply by workers in technical fields, most notably among inventors and workers with firm-specific skills.
Since non-compete agreements are enforced according to the law of the state they were entered into, state legislatures across the country have weighed in on the issue. In Oregon, Washington and California, lawmakers have placed large restrictions on non-compete agreements.
Oregon’s legislation restricts non-competes to apply only to employees who exceed the median income of a family of four. In California contracts deemed to prevent gainful employment are considered null and void, making many non-competes irrelevant in a court of law. In Washington, an employee must be making at least $100,000 to be subject to a non-compete.
These types of contracts just gained another hurdle Oregon. HB 2992 requires employers to go through the additional administrative step of providing a copy of the signed non-compete agreement to employees within 30 days of the termination of employment. While the law might not seem significant on its own, the new legislation is part of continued barrage of procedural red tape aimed at non-disclosure agreements.
Even before the passage of HB 2992, employers were required to inform new employees two weeks before their start date that their position would require a non-compete agreement. Furthermore, Oregon law states that even after an employees’ termination, the term of a non-compete cannot exceed 18 months. The new requirement, which goes into effect on January 1st, 2020, doesn’t relax any of the previous standards, and continues to make the prospect of non-compete agreement less and less viable to any company which may want to use one.
According to Clay Creps, employment litigation specialist at Tonkon Torp, the new legislation is part of a “growing, nation-wide trend to not restrict people in their ability to find gainful employment.”
Employers argue non-compete agreements serve an important purpose.. If an employer spends time and money on the development of a cutting-edge technology, a single defection could give a competitor an unfair advantage. If the poaching company has more resources, they could bring the smaller company’s technology to market more quickly, rendering the idea’s progenitor irrelevant.
“Because of the restrictions being placed on non-competes, employers should definitely be looking at other tools to protect themselves,” says Crepes, who adds there are alternatives to non-compete agreements to safeguard employers. “Non-solicitation agreements and non-disclosure agreements are not facing the kinds of restrictions as non-competes are.”
As non-compete agreements decline, employers can and will find alternative means of self-preservation. Non-disclosure agreements, for example, can provide some of the same benefits as non-compete agreements, without the barriers to employment. A non-disclosure agreement is a contractual obligation not to disclose agreed-upon information, such as company secrets or plans, with a new employer.
Similarly, a company could require a departing employee to sign a non-solicitation agreement. Unlike a non-compete agreement, which prohibits an employee from jumping ship to a competitor, a non-solicitation agreement prevents an employee from using a former employer’s clients, customers or list of contacts for personal gain upon departure.
Non-solicitation agreements can also prevent departing employees from trying to take employees with them. This type of agreement doesn’t prevent an employee from joining a competitor, but it does ensure the connections they made at their employer stay with their employer.
So far, these types of workarounds have yet to face much legislative review. That could change if those types of contracts become more widespread. If non-solicitation agreements were ever deemed to be a barrier to employment, however, they too could come under legislative scrutiny.
To subscribe to Oregon Business, click here.