The Oregonian recently reported that a former manager at the Oregon-based company, Electro Scientific Industries (ESI) has filed suit against his former company in the U.S. District Court of Oregon. Lynn Matthew Sheehan alleges that ESI attempted to block him from working at another laser company, and that he is entitled to at least $100,000 in economic damages and $250,000 in punitive damages. This case is interesting because it brings up the issue of how to deal with the presence of so-called “non-compete” clauses in Oregon employment law.
At-Will versus Contractual Employment
In general, employment in the United States is conducted at-will. At-will employment means that either employers or employees can terminate the employment relationship at any time for any reason that is not forbidden (such as discrimination on the base of gender or race or retaliation). Occasionally, employers and employees have a contractual employment relationship, meaning that the terms of the employment are determined by contract. In rare cases, such employment contracts contain what is called a “covenant not to compete,” more commonly known as a non-compete clause.
Non-Compete Clauses are Generally Disfavored
Covenants not to compete – which generally bar an employee from doing similar work at similar companies after leaving his or her current position – are premised on the idea of fairness. They are meant to prevent situations in which a former employee can exploit the trade secrets, client lists, and other pieces of sensitive or confidential information from their old employer to provide a competitive advantage to themselves or their new employers.
Courts do not look kindly on overly broad non-compete clauses, because they can have the effect of preventing individuals from working at all, so such clauses must usually contain reasonable restrictions, either in time (employee X cannot do this type of work at this type of company for 1 year) or in geographical scope (employee X cannot do this type of work at this type of company within the X, Y, and Z nearby counties), or both.
Non-Compete Clauses in Oregon
In 2007, the Oregon legislature drastically overhauled its laws regarding covenants not to compete. The new law indicated that covenants not to compete made after January 1, 2008 would not be enforceable unless:
-The agreement was made upon initial employment or actual promotion.
-The employment offer, received by employee no less than two weeks before the start of the employment, informs the employee that a non-compete clause is required as a condition of employment.
-The employee must have a certain type of job, generally administrative or executive, where the employee is routinely exercising his or her discretion or judgment and is mostly engaged in -creative, intellectual, or management tasks.
-The employer must have a “protectable interest,” such as trade secrets or other confidential or sensitive business information that could affect the employer’s competitiveness.
-A minimum salary requirement (approximately $61,000) was met.
In this case, Mr. Sheehan alleges that when he left ESI to take a job with another laser company, nLight, ESI sent him a proposed suit that claimed that his taking the job would violate an employment agreement not to work at a competitor business for one year after leaving ESI. Sheehan also alleges that ESI threatened nLight with a suit if they hired him, though neither suit was actually filed. The details of this case will prove crucial to the legal outcome, especially since Sheehan alleges that the two companies are not competitors at all, but secret collaborators, and that he would not be revealing any of ESI’s trade secrets in his new position.
In either case, employers and employees at similar technology companies should watch this case carefully to see how Oregon continues to evolve in its treatment of non-compete clauses. And if you believe that you have been unfairly bound by a non-compete clause, or any other term in your employment contract, contact our attorneys to see how you can assert your rights.