Law breaks down non-competes

Law breaks down non-competes

Oregon mandate forces owners to pay off former employees when enforcing non-competition covenants
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Sep 01, 2007




PORTLAND, ORE. — Oregon law now limits noncompete covenants to two years, requires immediate notification upon hire and forces owners to pay employees thousands of dollars to enforce such agreements.

The bill, signed Aug. 6 by Gov. Ted Kulongoski, has the profession's leaders scrambling to ascertain how the restrictions, specifically payout language, might affect veterinarians. The law covers hourly workers in non-managerial posts and salaried employees earning up to $61,000 a year. To enforce a noncompete agreement, owners who lose an associate grossing less might have to pay that person half of his or her annual income. What stands to protect the state's 500 practice owners is an exemption for workers with access to "trade secrets".


Dr. Jim Wilson
If client lists fall in that category, veterinary medicine is in the clear. But at press time, the Oregon Veterinary Medical Association (OVMA) remained uncertain whether that loophole applies to the profession. Even if the stipulation can't be enforced in veterinary medicine, Senate Bill 248 provides a blueprint for copycat laws in other states. California, Montana, North Dakota, Oklahoma and Alabama already shun such legal arrangements. Oregon's mandate signals changes to come, adding to the nationwide erosion of state laws concerning noncompete covenants, experts say.

"To my knowledge, Oregon is the only state that has a payout stipulation," says Jim Wilson, DVM, JD, owner of Priority Veterinary Management Consultants in Yardley, Pa. "It does appear that contracts with veterinarian are excluded under the professional exemption code, but the language in this bill is very confusing. Nevertheless, what it stipulates is truly fascinating."

New ideas

The bill's novel parameters are what make it so interesting, Wilson contends. Apart from the payout clause, the law requires owners to offer job candidates written notification of any noncompete requirements at least two weeks before the employee's start date.

"In Oregon you have to be up front," Wilson says. "I'm absolutely in favor of that."

There's also concern regarding when the law takes effect, considering no date is specified in the language. While reports speculate its will be implemented Jan. 1, even veterinarian Rep. Kurt Schrader, who voted for the measure, remains unclear concerning whether the law will apply to noncompetes enacted between Aug. 6 and the year's end.

"That's a good question. I don't have an answer for that," he says.

'Unintended consequences'

Schrader, owner of Clackamas County Veterinary Clinic in Oregon City, says the bill "took us all by surprise during the middle of the session."

According to OVMA lobbyist Laura Smith, the initiative stems from Oregon Labor Commissioner Dan Gardner's attempt to eliminate noncompetes agreements entirely. Gardner accused businesses of abusing the agreements by using them against low-level workers not exposed to company secrets.

Schrader says the bill, while somewhat controversial, actually cements the authority of noncompete agreements by addressing them legislatively in a state where such covenants often falter in the courts.

Still, the law's payout clause is concerning, he says. If it applies to veterinarians, Schrader promises to flex his political muscle to alter the measure. Although Oregon's next full legislative session doesn't begin until 2009, he assures the law won't go unaddressed.

"As state senator in Oregon, I often find that legislation has unintended consequences," he says. "It's very common that we would revisit something of this magnitude, and I'm confident that most of what we don't like can eventually be changed."