Minimum salary for noncompete agreements rises in 2023
Employee ClassificationsWage and Hour
Employers in Oregon and Washington who use noncompetition agreements must review enforceability requirements and increased minimum salary thresholds annually in order to ensure that their contracts remain legally enforceable at the time of separation from employment.
Oregon: For valid noncompete agreements signed on or after January 1, 2022, the minimum gross salary for separated workers in 2023 was adjusted upward for inflation, although there is some uncertainty as to the exact figure. As we previously reported, an Oregon statute (ORS 653.295) establishes that figure as $100,533.00 in 2022 and says the amount in subsequent years is calculated based on the “Consumer Price Index for All Urban Consumers, West Region (All Items), as published by the Bureau of Labor Statistics of the United States Department of Labor immediately preceding the calendar year of the employee’s termination.” The relevant CPI report is here, but it’s unclear what figure to use. Unfortunately, the legislature didn’t direct the Oregon Bureau of Labor and Industries (BOLI) to make this calculation or publish the results. Subject to further guidance, we suggest using a minimum salary of $107,670.84 in 2023. We calculated this amount using the greater of the 12-month figure in Table A for either November 2022 (because it was the last figure published in 2022) or December 2022 (because it was the last figure containing 2022 data). The November 2022 12-month rate is 7.1 percent and the December 2022 12-month rate is 6.2 percent, so to be on the safe side we recommend using 7.1 percent. This figure applies to salaried executive, professional, or administrative employees who are exempt from overtime.
Noncompetition agreements for other Oregon employees separated in 2023 (those with lower levels of pay or who aren’t exempt salaried executive, professional, or administrative employees) may be enforceable if, during the period they’re restricted from working, they receive 50 percent of their annual gross base salary and commissions at the time of termination, or 50 percent of the government-specified minimum stated above, whichever is greater. The minimum salary upon termination is different for agreements signed before January 1, 2022. Salary isn’t the only consideration in determining whether a noncompete agreement is valid; additional requirements also apply, depending on when the agreement was signed.
Washington: The minimum annual salary of employees who are separated from employment in 2023 must exceed $116,593.18 (adjusted upward from $107,301.04 in 2022) in order for their employer to enforce a noncompete agreement. In Washington, the Department of Labor and Industries (L&I) calculates and posts these figures on its Non-Compete Agreements webpage. Pay attention to the first row of the chart (RCW 49.62.020), which applies to employees; the second row applies to independent contractors. As we previously reported, in 2020, Washington made significant changes to its law governing noncompetition agreements, including setting a minimum salary requirement. Additional requirements apply in order for the agreement to be enforceable.
Tips: See our Legal Guide, Noncompetition Agreements, for details on enforceability of these agreements in Oregon and Washington, beyond just the salary levels upon termination. It also explains the different requirements that apply depending on the date an agreement was signed in Oregon. Noncompetition agreements have always been subject to more scrutiny than other types of contracts and have been getting harder to enforce. Recently, the U.S. Federal Trade Commission (FTC) ordered several companies to cease using overbroad noncompete agreements that violated federal laws prohibiting unfair competition. The FTC also announced its desire to ban the use of noncompete agreements altogether. The FTC said that the use of noncompete agreements is an “often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The FTC is seeking public comments on its proposed rule until March 20, 2023. Noncompetition agreements are already banned under California law. We will keep you updated as the rulemaking process continues. Questions? Contact your Vigilant Law Group employment attorney.