Oregon Cannabis Companies Take Note: Noncompetition Provisions May Become a Thing of the Past

Our Oregon cannabis lawyers are often asked to include noncompetition provisions in employment agreements to ensure our cannabis clients don’t lose top talent to their competition. In many states, such as California, noncompetition provisions are flat out prohibited. Though Oregon allows noncompetes in principle, the reality is they are still strongly disfavored by the courts and the legislature. An Oregon cannabis employer must jump through a number of hoops to get an enforceable noncompete, but even that looks likely to change.

In Oregon, noncompete provisions are governed by ORS 653.295, which provides some severe restrictions:

  • At least two weeks before the first day of employment, a prospective employee must receive a written employment offer explaining that a noncompete will be required. Alternatively, a new noncompetition provision can be created when an employee receives a legitimate advancement, such as a promotion that expands job responsibilities to include protectable company information along with a raise.
  • The employee must:
    • have access to trade secrets; or
    • have access to other competitively sensitive confidential business or professional information, such as product development plans, product launch plans, marketing strategy, and sales plans.
  • Unless the employer is willing to pay 50% of the employee’s previous compensation during the noncompetition period then:
    • The employee must be paid at least $62,000 annually (this is tied to US Census Bureau data, so will sometimes fluctuate).
    • The employee must be engaged in administrative, executive, or professional work and
      • perform predominantly intellectual, managerial, or creative tasks;
      • exercise discretion and independent judgment; and
      • earn a salary and be paid on a salary basis.
  • The noncompete can only last 18 months after the termination of employment.
  • The geographical area for noncompetition must be reasonable (“Southern Oregon” might be reasonable, “the Continental United States” is probably not).

The first take away is that noncompetes in Oregon can’t currently bind your rank and file employees unless you want to continue paying 50% of their previous wages after they leave. If you want to prevent your trimmers and budtenders from seeking greener grass next door, it is going to cost you. The second take away is that your employment agreements should include nondisclosure provisions to prohibit your employees from sharing trade secrets, such as processes and procedures, with their new employers when they do jump ship.

As we said above, it looks like the Oregon legislature intends to clamp down even more severely on noncompetes. As initially introduced this session, Oregon SB 977 would follow California’s example and effectively void all noncompetition provisions. SB 977 was referred to the Oregon Senate Committee on Judiciary, where certain amendments are being considered. Once it gets back into session, the Judiciary Committee will consider amendment SB 977-2, which would require an employer to keep paying a terminated employee their full salary during the restricted period.

If SB 977, as introduced or as amended, is ultimately adopted, then noncompetes as we know them in Oregon will be gone. They will either be voided outright, or become so expensive to maintain as to be effectively useless. Either way, this will make nondisclosure provisions even more critical in the future. You may not be able to stop your key employee from heading next door, but you should still try to stop the flow of critical information to your competitors.