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Noncompete Clauses: Where Oregon and Washington Differ

| Sep 14, 2020 | Employment Law |

There are significant legal differences between Oregon and Washington in how courts will determine whether a noncompete clause is legal and enforceable. Workers in these states 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.

Both employers and current employees should understand the differences in the law governing noncompete agreements in order to best protect their investment in the employment relationship.

What Is a Noncompete Clause?

Although interpretation and implementation of noncompetition agreements can become complex in practice, the overall purpose of a noncompetition clause is simple: it’s a contract term that prohibits an employee from competing against his employer.

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

What Is the Difference between Washington and Oregon?

While Oregon and Washington’s noncompetition agreement statutes share some characteristics—such as 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. Under the statute, parties generally may only 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 Washington’s requirement.  An advancement must go beyond a mere pay raise; “bona fide advancement” also requires a significant increase or change in job duties.

Washington

On January 1, 2020, Washington enacted a new law, RCW 49.62, to govern noncompetition agreements. Currently, 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.

A Washington employee must make more than $100,000 per year to be subject to a noncompetition agreement, and an independent contract must earn more than $250,000 per year.

The law also requires the employer to disclose all the terms of the noncompete during or before making an offer, or to provide additional compensation if the employee is already employed with the employer.

Finally, if an employer lays off an employee, the Washington statute requires the employer to compensate the employee for the duration of time he or she is subject to any noncompete agreement.

Know the Law—Protect Your Interests

This short overview covers only the high-level requirements Oregon and Washington 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 defense against costly mistakes in this regard.