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What is the difference between noncompete agreements in Oregon and Washington?

Oregon and Washington employees searching for jobs that require knowledge of a company's trade secrets and protected information should be familiar with the basics of noncompete clauses in employment contracts.

There are significant legal differences between the two states in how the courts will determine whether a noncompete clause is legal and enforceable. Both employees and employers should understand the differences in the law governing noncompete agreements in order to protect their investment in the employment relationship.

What Is a Noncompete Clause?

Although interpretation and implementation of noncompetition agreements may get complicated, the purpose of a noncompetition clause is pretty simple: it is a clause within a contract that prohibits an employee from competing against his employer.

Noncompete clauses last throughout the term of the employment contract and carry over for a period of time afterward. In Oregon, an employee cannot be bound by a noncompetition agreement for 12 months following employment. In Washington, that period is 18 months.

An employer must be able to prove it has a "protectable interest," or in other words, that an employee has access to trade secrets or otherwise proprietary information worth protecting.

What is the Difference Between Washington and Oregon?

While Oregon and Washington's noncompetition agreement statutes share some characteristics-requiring the employer to have a protectable interest, limiting the duration of noncompetition agreements after termination, and requiring employees to meet certain criteria before they may be bound-there are also some key differences between the states.

Oregon

Noncompetition clauses in Oregon are governed by ORS 653.295. The statute contains several requirements an employee and employer must meet before the employer may enforce the agreement.

ORS 653.295 states that "[a] noncompetition agreement entered into between an employer and employee is voidable and may not be enforced by a court of this state unless..." In other words, noncompetition agreements are voidable unless the parties satisfy the statutory criteria.

In Oregon, parties can enter into noncompetition agreements at the commencement of employment or upon bona fide advancement of the employee. In either instance, the employee must be exempt under Oregon wage laws, the employer must have a protectable interest that justifies the noncompete and the employee must make more than the median income for a family of four (as determined by the U.S. Census Bureau).

When a noncompete is entered into as part of the initial employment, the employer must present the employee with the agreement at least two weeks prior to the employee starting the job.

An employer can also require an employee to enter into a noncompetition agreement during the employment relationship. However, the agreement is not enforceable unless it is presented to an employee upon "bona fide advancement" in the company.

This "bona fide advancement" requirement is narrower than the requirement in Washington. An advancement must go beyond a mere pay raise; "bona fide advancement" requires a significant increase or change in job duties.

Washington

Washington enacted a new law governing noncompetition agreements on January 1, 2020. Noncompete clauses are generally presumed enforceable (in contrast to Oregon's presumption of voidability), and noncompetes are in fact enforced far more widely in Washington than they are in Oregon.

Under that law, Washington requires that an employee earn more than $100,000 per year, or an independent contractor earn $250,000 per year.

The law also requires the employer to discloses all the terms of the non-compete during or before making an offer, or provides additional compensation if the employee is already employed with the employer.

Finally, the law requires that an employer compensate employees that are laid off for the duration of the time period they are subject to non-compete agreements. The agreement cannot cover a period longer than 18 months.

Know the Law - Protect Your Interests

This is a short, high-level overview regarding the requirements employers must follow when asking employees to sign noncompetition agreements. If you are an employer in either state, it is critical to protect your interests. Working with a legal team that focuses on representing employers is your best security against costly mistakes in this regard.

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