How do I keep former employees from competing against me?

After investing the time and money that it takes to launch a new, successful business, it is not surprising that many companies seek to protect their confidential information and general know-how. By signing a simple non-competition agreement (or “non-compete”) with employees or contractors, a company can protect its business as it continues to grow. However, if an employer is not careful, then they will lose the protection they are seeking.

Non-Competition Agreements In Action
When a non-competition agreement is enforceable between a business and one of its former employees, it prevents the former employee from competing with the business. However, the enforceability of non-competition agreements can widely vary from state to state, with some states imposing additional requirements, posing obstacles for unwary businesses. In California, for example, non-competes between an employee and employer are – in short – not permissible. In other states, like Oregon, the enforceability of a non-compete is highly restricted.

Oregon Non-Compete Requirements
In Oregon, a non-competition agreement between an employer and employee is generally voidable by the employee, unless certain statutory requirements are met.

Those requirements include:

  1. Advance Notice – the employee must have advance notice of the non-compete (typically two-weeks);
  2. Advancement – the non-compete can only be introduced in conjunction with a new job or job advancement;
  3. Employment Classification – (i) the employee must also fall within certain classes of employees, such as salaried administrators and managers, and (ii) the employee must earn an annual salary in excess of a certain threshold; and
  4. Protectable Interest – the employer must have a protectable interest (i.e., the employee has access to trade secrets or competitively sensitive and confidential business information).

Even if an employer can meet all of these requirements, an Oregon court may not enforce a non-compete that is not reasonably limited in its scope – in terms of the competing activity, duration, and geography. When crafting these limitations, an employer must ask, “How long would it take for someone starting from scratch to develop this business?” Generally speaking, courts will only allow a restriction that lasts a year or two and covers the employer’s business territory.

Drafting Non-Competes
When creating a non-compete an employer should ask: What am I protecting? How can I best protect it? Who am I protecting it from? What states are involved? What are those states’ requirements? Will a non-solicitation agreement suffice?