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Thursday
Nov082001

Non-Competition Agreements

I was recently asked a series of questions regarding non-competition agreements. You may find this discussion helpful. The questions and my answers are set out below.

Is a non-compete enforceable?

Noncompetition agreements are not favored by the courts but they will be enforced in Oregon if they comply with the statutory and common law requirements. Those include:

-- Limited in scope.
-- Limited in duration.
-- Limited in geographic area.
-- The employer has a protectable interest.
-- The agreement signed upon "initial employment" or "bona fide advancement."

In addition to the noncompetition agreement, the employer is also protect by common law confidential information and trade secret rulings. Employees and former employees are under continuing duties not to disclose confidential information. That information does not need to rise to a trade secret. In certain cases, courts will prevent employees from working for competitors even though there is no noncompetition agreement or no enforceable noncompetition agreement.

Is it costly to enforce?

It depends. I am working on a case right now that should be resolved by two sets of letters with documents and two telephone calls between the employee's counsel and the employer's counsel. I have also worked on cases between Fortune 500 competitors with lots at stake. One of those cases went to a three day preliminary injunction hearing. In that case my client enforced its agreement and prevent its rival from learning of its confidential practices. As a result, my client over took its rival and now dominates its industry.

Generally, a compelling letter from the company's lawyer seeking to enforce the noncompetition agreement with production of appropriate documents and threats of a preliminary injunction should be enough to get the new employer to think twice.

Have you successfully enforced one?

I have successfully enforced noncompetition agreements and have successfully defeated noncompetition agreements.

What problems did you encounter attempting to enforce the agreement?

Usually the biggest problem is whether the agreement was signed upon initial employment or whether we could prove when it was signed. Other problems include showing that the terms of the agreement (scope, duration and geographic range) were reasonable and showing that the employer has a protectable interest that is reasonably guarded by the noncompetition agreement.

Is enforceability directly linked to the way the agreement is written?

Yes. The reasonableness of the agreement must be evident from the terms of the document. The scope, duration and geographic range must be reasonably limited to that which will protect the employer's protectable interests.

It would also be helpful if the agreement defines the interests of the employer protected by the agreement, such as the employee's access to confidential information (confidential customer lists, pricing data, supplier lists, processes, methods of doing business, marketing plans...) or confidential training in the employer's methods. The interests of the company can also be proved by other evidence if needed.

What legislation is necessary to be able to enforce these agreements? Your input is greatly appreciated.

I am not sure that legislation is required. The biggest trap for employers is the upon initial employment or bona fide advancement requirement. I doubt if the legislature would change this.

Competent counsel from a lawyer should help employers draft enforceable noncompetition agreements, draft enforceable confidential information agreements and develop policies for using these agreements in an enforceable manner.

I hope this helps.

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