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Employment Alert -
Non-Compete Changes Create Risks for Employers
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Both the Oregon and Washington legislatures enacted changes to their non-compete laws which became effective on January 1, 2020. Employers who do not pay attention to these changes risk rendering their non-compete agreements unenforceable through mere inaction, and may face possible monetary damages. The changes are summarized below:
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OREGON
An employer must send a copy of an employee's non-compete agreement to the employee within 30 days following the employee's termination of employment, whether the termination is voluntary or involuntary. If the employer fails to comply with this requirement, the non-compete agreement is no longer enforceable. Employers who use non-compete agreements should add this requirement to their termination/resignation checklists to be sure that they do not void their non-compete agreements by simple inaction.
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WASHINGTON
Washington imposed sweeping changes to its restrictions on non-compete agreements. Most importantly, Washington law now flatly prohibits the use of non-compete agreements for employees earning less than $100,000 per year. It also imposes strict conditions on non-compete agreements for employees exceeding that salary threshold. Employers outside Washington should also pay attention to these changes because these new restrictions likely apply to any employee based in Washington, even if the employer is located in another state. Effective January 1, 2020, a non-compete agreement is only valid in Washington if it satisfies the following conditions:
- The employer must disclose the terms of the non-compete agreement to the employee in writing no later than the time of employee's acceptance of an offer of employment.
- A non-compete entered into after employment begins must be supported by independent consideration, typically a bona fide advancement which includes an increase in pay.
- The employee must make at least $100,000 per year. No employee making less than $100,000 per year can be required to execute a non-compete in connection with employment, and if they did sign one, it is not enforceable. An employer may enter into a non-compete with an employee making less than the salary threshold so long as it expressly states that the non-compete is not enforceable until the employee's income reaches $100,000. The $100,000 threshold will be adjusted annually for inflation.
- If an employee is terminated because of a "layoff," the employer must pay the employee their base salary for the period of enforcement in order to enforce the non-compete. The term "layoff" is not defined in the statute.
- A restriction greater than 18 months is presumptively unreasonable and unenforceable.
- The Washington statute also imposes restrictions on non-compete agreements for independent contractors. A non-compete agreement with an independent contractor is only valid in Washington if the contractor makes $250,000 per year.
The Washington law also imposes statutory damages and attorneys fees on any employer who enters into a non-compete agreement that violates the statute. This ability to recover damages and attorneys fees appears to apply even if the employer does not subsequently attempt to enforce the non-compete agreement against the employee.
The law confirms that non-solicitation agreements and confidentiality agreements are not non-compete agreements and remain enforceable as to all employees.
Finally, the Washington law applies to non-compete agreements entered into prior to the effective date of January 1, 2020 if an employer attempts to enforce a non-compete agreement after the effective date.
These changes to Washington law are significant and impose significant risk on employers. Employers should seek advice of their attorney before attempting to enforce any non-compete against a Washington-based employee after January 1, 2020.
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The federal government may soon join the states in restricting the use of non-competes. The Federal Trade Commission is exploring the issue and may consider issuing rules on non-competes. Stay tuned for updates on potential federal action.
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Kim McGair
'
s
practice emphasizes a wide range of litigation matters including employment, commercial litigation, commercial collections, personal injury defense, and real estate litigation. She is an advocate for her clients and provides them with sensible advice and strong representation to protect their interests and help them achieve their objectives as efficiently as possible. Kim was selected by her peers for inclusion in the Best Lawyers in America® 2018-2020 for Commercial Litigation and to the Oregon Super Lawyers list 2019 for commercial litigation.
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Kelly Tilden
focuses her practice in the areas of employment law, business, and litigation. She advises clients regarding the hiring, discipline and termination of employees, compliance with state and federal civil rights, wage and hour laws, and leave laws. Kelly offers practical guidance and experienced-based insight to help employers confidently apply state and federal regulations. She has been s
elected by her peers for inclusion in the
Best Lawyers in America
®
2018-2020 for Employment Law - Management.
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Trish Walsh
focuses her practice in the areas of litigation and employment law, protecting clients' interests inside and outside the courtroom. In her employment practice, Trish drafts, audits and updates policy handbooks and provides advice on employment issues under Oregon, Washington and federal laws.
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Jon Himes
practices in several areas including litigation, employment, and financial services, enabling him to assist clients with a full-range of legal and business challenges. His employment practice focuses on employment litigation and wage and hour laws.
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