Restraints on Trade in Oregon Beyond Restrictive Covenants

The legal duties and obligations of employee to employer are created and enforced by means of a tripartite model of contract, statute, and common law.  This article focuses on the statutory and common law aspects of this legal framework. 

Most written Oregon employment agreements include restrictive covenants.  Noncompetition, nonsolicitation (of customers, employees, or contractors), and confidentiality or nondisclosure provisions are the most common contractual restrictive covenants in Oregon.  Invention assignment agreements are of course widely used and contain covenants to assign to the employer future inventions created during employment on the employee's own time.  Invention assignments are in effect a restrictive covenant. 

There are still many Oregon employees, however, who have not signed contractual restrictive covenants with their employers, or who have signed incomplete restrictive covenants.  These employees sometimes ask:  In the absence of signed restrictive covenants, do I have any obligations at all to my employer when it comes to pursuing my profession?  The answer is, "Yes."  Regardless of restrictive covenants (or in addition to them), statutory trade secret and common law duties apply to an employee's future competitive endeavors.  But with careful planning, whch should include legal advice from an Oregon noncompete attorney, there is no reason to run afoul of these statutory or common law principles.  This body of law does not prevent an employee from competing; it simply establishes basic ground rules. 

The article below briefly addresses Oregon trade secret laws, common law duties, and some practical considerations in conjunction with the relevant legal principles, that Oregon employees should be aware of when moving to a new employer who competes with the former employer, or when the employee starts a new company altogether.  This article is not legal advice.  For a consultation on any of the issues raised here, please email or give me a call.  Email is generally the best way to initiate contact.  You can reach me at:  jim@worklaw.io   The time to schedule a consultation is before receiving a cease and desist letter or lawsuit from your former employer.  Indeed, I recommend a consultation before you leave your employment as the best hedge against future trouble.  

1.  Oregon Trade Secret Laws

Like most states, Oregon has passed statutes which, with only minor changes, are based on the Uniform Trade Secret Act.  See ORS 646.461 - 646.475   The law protecting trade secrets codified in the Oregon Revised Code applies to everyone, including employees and former employees.  While most written Oregon employment contracts will contain an affirmation of compliance with trade secret law and an express agreement not to misappropriate an employer's trade secrets, Oregon statutory trade secret laws apply regardless of whether the Oregon employee signs anything.  This is likely no surprise to most employees, but a refresher in what the statute says is a good idea for any employee moving to a competitor or starting his or her own competing business.  

One key provision of Oregon trade secret statute is the broad definition of a "trade secret":

"Trade secret" means information, including a drawing, cost data, customer list, formula, pattern, compilation, program, device, method, technique or process that:
(a) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

ORS 646.461

A close reading of the statutory definition of "trade secret" is important and provides food for thought in terms of what is protected from appropriation or misappropriation.  An informed reading of the statute with the assistance of an Oregon employment attorney will also provide guidance on how to avoid trouble.  

Other important features of Oregon statutory trade secret laws are:
  • Damages for misappropriation may include actual loss, or unjust enrichment, and punitive damages up to double actual damages for willful or malicious misappropriation.  ORS 646.465
  • Temporary, preliminary, or permanent injunctive relief may be issued against the misappropriating party.  ORS 646.463
  • Attorneys fees may be awarded to the prevailing party in certain circumstances, including if willful misappropriation is found by the court or jury.  ORS 646.467
  • The statute of limitations is 3 years from discovery, or when discovery should have occurred with reasonable diligence, of the misappropriation.  ORS 646.471  
  • Statutory trade secret claims and remedies supercede conflicting tort remedies, but do not supercede contractual remedies or other civil remedies not based on misappropriation of a trade secret, and do not supercede criminal remedies "whether or not based upon misappropriation of a trade secret."  ORS 646.473
Of note is that the 3-year statute of limitation is longer than Oregon's 1 year tort statute of limitations.  While an employer could feasibly 'lie in wait' to spring a statutory trade secret claim, the reality is that the employer who suspects a trade secret violation will generally move sooner than later to obtain injunctive relief to stop the violation from occurring or continuing.  Indeed, an employer who is aware of an alleged trade secret violation, or breach of restrictive covenant, who does not move promptly may see the merits of its claims diminished.  Certainly, the rhetorical force of a claim of damages for breach of trade secret laws is less persuasive if the employer was aware of the violation yet did not move promptly to intervene and stop the damage.  

2.  Oregon Common Law Claims Related to Competition

There are several potential tort claims that may arise in connection with employees who have left their employment to work for a competitor or to start competing businesses or consulting firms.   

Intentional Interference with Economic Relations:  One common law claim employers will frequently bring in this context is Intentional Interference with Economic Relations ("IIER").  Even in cases in which the employee has executed an Oregon noncompete or nonsolicitation agreement, the employer will often include the intentional interference with economic relations claim.  While the claim has superficial appeal -- if an employee who formerly worked for a business subsequently takes away customers or work from the business, it sounds as if IIER fits the bill -- in fact, the elements of this claim are difficult to fully satisfy.  

The elements of an intentional interference with economic relations claim are:   

  1. the existence of a professional or business relationship;
  2. intentional interference with that relationship;
  3. by a third party;
  4. accomplished through improper means or for an improper purpose;
  5. a causal effect between the interference and damage to the economic relationship; and 
  6. damages.
McGanty v. Staudenraus, 321 Or. 532 (1995).
   
The fourth element of the IIER claim set forth above is often the element least likely to be satisified in cases involving departing employees.  An in-depth discussion of the IIER claim is beyond the scope of this brief article, but, suffice it to say, that competing using good faith business practices is generally neither an improper means nor an improper purpose. 

Breach of Duty of Loyalty:  Another common law claim is breach of duty of loyalty.  See  Cox v. C & H Reforesters, Inc., 239 OrApp 101 (2010)  This claim can arise, e.g., when an employee is using what should be employer work time or using employer business contacts to lay the groundwork for the employee's own competing business.  If you have questions about "preparing to compete," e.g., what is allowed and what may be deemed a violation of your duty of loyalty, you should schedule a consultation with an Oregon employment attorney.  Some common steps employees may take, such as establishing an LLC while still employed, may look different in the rear-view mirror, even though they seemed entirely appropriate at the time.  In any event, the specific facts and circumstances are important.  Preparing for the next chapter in employment or business is certainly not illegal if done properly and consistently with one's contractual, statutory, and common law duties. 

Defamation, Fraud, and Other Tort Claims:  There are a number of additional common law civil claims, such as defamation and fraud, which can arise in such cases.  For higher-level employees who are also officers of the company, claims of breach of fiduciary duty (such as misappropriation of corporate opportunity) are not uncommon.   

Breach of Contract:  While this article addresses extra-contractual claims, i.e. claims in addition to breach of restrictrive covenant claims, most litigation arising when a departing employee has allegedly breached duties in this area will include some combination of contract, statutory, and common law claims.   

Criminal Law Remedies:  Finally, it's important to keep in mind that even criminal claims, such as conversion or wire fraud, could be brought by the government against an employee who has misappropriated property, including intellectual property or data, from his or her employer.  As mentioned above, Oregon statutory trade secret laws do not preempt criminal remedies.  Likewise, the Computer Fraud and Abuse Act ("CFAA") includes the potential for both criminal prosecution and civil remedies.  18 U.S.C. Section 1030

3.  Avoiding Claims Related to Competition

I assist my Oregon employment law clients with planning to avoid the most common claims related to restraints on trade, whether they be Oregon restrictive covenant claims, trade secret litigation, or common law causes of action. 

These are a few of the basic principles a departing employee must keep in mind:

Don't take anything:  It seems obvious, but failure to be careful and conservative on this point often leads to major headaches if not litigation.  I've seen and handled numerous matters in litigation and otherwise in the past few years, in which employees have either used their personal email accounts for business purposes or perhaps forwarded information to their personal accounts for benign reasons, yet these actions have lead to accusations of misappropriation or breach of contract.  Don't do this.  Even for purposes of seeking legal advice, it's best to contact an experienced Oregon employment attorney first before proceeding.  An attorney will be able to advise you how to proceed and explain the sorts of information you may be entitled to see or retain, if any.  Oregon does have, of course, a statute which provides that employees are entitled to access to their personnel files.  See  ORS 652.750.

Review your contract:  Once you've confirmed that you won't be taking anything you shouldn't be taking, the next order of business is to ensure you do not violate any of your other existing contractual promises.  This will include any restrictive covenants but also issues such as confidentiality and (again) return of company equipment and data.  The contract may also specify that you are to notify the employer of the identity or location of your new employer or business endeavor.  These provisions have been upheld in other jurisdictions, and, in any event, with the online presence necessary to conduct business today, it's obvious that your future business or employer will be general knowledge. 

Most Oregon employment contracts will also provide that your employer is entitled to inform any new employer of restrictive covenant agreements (a step that you'll need to take yourself in most cases if you are signing a new employment contract, as most contracts contain a provision that, by accepting an offer of employment, you are not violating any duties or obligations to third parties).

Returning equipment:  Most Oregon employment contracts will contain standard terms relating to return of company property, which includes not only computers and phones and hard copies, but data in any form, including of course digital files.  It is not uncommon for employees who are working from home to commingle personal and business files.  While it's always best to avoid this, at the end of employment it is necessary to squarely address the issue.  You should ask your manager or HR department, in writing, how the company wishes to handle this.  If you are retaining a computer or phone used for work, the best practice is to have your company IT department scrub the device.  Alternatively, if you are left to handle this on your own, deleting files with the permission of the company  -- and not forwarding files to your personal email accounts -- prior to leaving employment may be acceptable.  That should be done before leaving and not months later, e.g. after you have looked at the files subsequent to your termination date.  Assume that anything you do with digital files, accessing, copying, sharing, can be recreated later should there be a dispute with your employer.  Digital forensic capabilities today are sophisticated.   

Maintaining confidentiality:    There is a universal requirement to protect the confidentiality of your employer's trade secrets, data, processes, customer lists, and really everything about the company business that is not publicly available information.  This confidentiality requirement will almost certainly be in writing if you have an employment contract.  If your employer has an employee handbook, it will contain a confidentiality requirement.  But even if the employer has no written confidentiality covenants, employees have a duty to maintain confidentiality under Oregon's trade secret laws.  Furthermore, as indicated above, failure to maintain confidentiality may well give rise to a common law claim as well.  Therefore, plan ahead to be sure that after termination, you will not breach your employer's confidentiality.

4.  Conclusion

With careful planning and preparation, there is no reason to run afoul of your contractual, statutory, or common law obligations to your previous or current employer.  I recommend a consultation with an Oregon employment attorney if you have issues or concerns about working for a competitive employer or starting your own competitive business.  A consultation prior to departing your employment is always a good idea to ensure that you are competing with the least possible risk of legal exposure. 

I can be reached at:  jim@worklaw.io