Many employees come to us when their employment is coming to an end, wondering about whether or not a non-competition agreement they were made to sign years ago will destroy their ability to continue working without being forced to leave the area or even the state.
Fortunately, given the intricacies of Oregon’s non-competition statute and recent legislative changes, we can often deliver the news that the noncompete is invalid. Still, in many instances we have to inform the employee that they face serious legal and financial risks if they take a job with a competitor.
However, the Federal Trade Commission is trying to come to the rescue. The FTC announced a proposed rule change that, if enacted, will provide these employees with some relief.
Noncompete agreements are contracts that limit workers’ future job opportunities by restricting them from pursuing opportunities with a competitor of the original employer. If violated, an employer may sue for breach of contract or ask a court to restrict the employee’s ability to take a new job or start a new business. In most instances, the employee will also be on the hook for the employer’s legal fees.
In a move reflecting the Biden administration’s criticism that noncompete agreements are designed to lower wages, the proposed rule would bar all noncompete agreements.
The proposed rule responds to findings that noncompete agreements have a negative effect on the economy and create stagnation in the labor market. While employers often claim that noncompetes are necessary to protect their trade secrets and preserve investment in employees, the agreements severely curtail the freedom to hire new, qualified candidates. In the labor market, this forced lack of mobility and competition results in lower wages and less innovation, and great hardship for affected employees.
If implemented, the proposed rule would prevent employers from enforcing, creating, maintaining, or attempting to implement noncompete agreements. Under the rule, employers may still protect their interests by enforcing non-disclosure agreements, non-solicitation agreements, and training repayment agreements. If finalized, the new rule could supplant state law and set a national standard.
Current Oregon law does offer some significant protections to workers who may be subject to a noncompete. These include notice requirements prior to imposing a non-compete and at the end of an employee’s tenure with a company, a 12-month limit on the duration of a noncompete, and minimum income requirement at the time of termination. T
he question of whether or not a noncompete is enforceable can be technical. We strongly recommend that employees closely review all agreements put in front of them at the start of a new job, and get legal advice if necessary.