Oregon Court Gives Invalid Non-Compete New Life as Non-Solicit Agreement

According to a recent Oregon Court of Appeals opinion, non-compete agreements that fail to comply with Oregon law may still be enforceable as a covenant not to solicit. The case, Oregon Psychiatric Partners, LLP v. Henry, 293 Or. App. 471 (2018), involved an attempt by Oregon Psychiatric Partners, LLP (“OPP”) to enforce a non-compete agreement with its former employee, a psychiatric nurse practitioner.

Background

The non-compete at issue in Oregon Psychiatric Partners states that “Nurse Practitioner shall not provide services, directly or indirectly through any person or entity, to any patients who have received services by Nurse Practitioner at OPP or any predecessor entity for a period of two (2) years after termination of Nurse Practitioner’s employment under this agreement within fifty (50) miles of Eugene, Oregon.” The trial court ruled that the agreement was not enforceable because the circumstances of Nurse Practitioner’s employment did not satisfy all of the requirements of ORS 635.295(1). OPP argued that the trial court nevertheless should enforce the agreement as a valid covenant not to solicit. The trial court refused to do so.

Court of Appeals’ Decision

In an opinion issued last month, which is available here, the Oregon Court of Appeals reversed the trial court’s ruling, finding that the non-compete agreement is at least in part enforceable as a covenant not to solicit under ORS 653.295(4)(b). ORS 653.295(4)(b) states that the restrictions on non-compete agreements do not apply to “[a] covenant not to solicit employees of the employer or solicit or transact business with customers of the employer.”

The Court of Appeals acknowledged that the agreement as drafted would restrict competition to a degree not permitted under ORS 653.295(4)(b). However, nothing in the statute “suggests that the legislature intended to preclude partial enforcement of overbroad nonsolicitation agreements.” The Court of Appeals also pointed to the severability clause in OPP’s employment contract, whereby Nurse Practitioner expressly agreed that the contract terms would remain enforceable to “to the extent permitted by law and so as to most fully accomplish the parties’ objective intent.” Accordingly, allowing OPP to enforce the agreement to the extent it can show that its former employee engaged or sought to engage in business with OPP’s “customers” would accomplish that intent.

In remanding the case to the trial court for further proceedings, the Court of Appeals noted that “customers” should be interpreted narrowly and requires more than an incidental relationship. “Customers of the employer” means persons or entities who would reasonably be expected to return to the employer for the purposes of doing business when the employer-employee relationship ended. The focus is on the status of the customers at the time the former employee solicits or transacts business with them.

Practical Considerations

While this decision indicates that some Oregon courts may be willing to re-write invalid non-compete agreements into covenants not to solicit, Oregon employers should not rely on courts to do that work. Rather, a non-solicit agreement should be a stand-alone contract clause, narrowly drafted to satisfy ORS 653.295(4)(b). If you also wish to bind your employee to a non-compete, separately state those terms and ensure that you and the employee meet all of the requirements in ORS 653.295(1)(b). Please contact a member of our Employment Law Group if you have questions about the enforceability of the restrictive covenants in your current employment agreement.

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