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Oregon Court of Appeals Allows Enforcement of a Covenant Not to Compete by Narrowing the Meaning of “Customers”



Last week, the Oregon Court of Appeals issued its opinion in Oregon Psychiatric Partners, LLP v Henry, 293 Or App 471 (2018). The opinion is a helpful reminder that a court retains the power to use its "blue pencil" to convert an unenforceable provision in a noncompetition agreement into an enforceable one.

More specifically, the court concluded that a provision in the agreement to prevent the employee from soliciting or transacting business with "customers of the employer" should be interpreted to fall within an exception to the ban on competition. The language was narrowed so that it only applied to prevent a promise to not solicit customers "who would reasonably be expected to return to the employer for purposes of doing business." In other words, by narrowing the definition of "customers," the court was able to save the provision. In particular, the court avoided having to decide that the clause in the contract, which literally would have applied to any "customers of the employer" was too broad to enforce.

Oregon Psychiatric Partners, LLP v Henry provides some useful reminders. Because the trial court dismissed the case at the close of evidence from plaintiff Oregon Psychiatric Partners, no evidence was presented by Henry on the nature of the customers. In other words, there was no evidence as to whether the patients had ceased to be customers of Oregon Psychiatric Partners before Henry left, or whether the nature of the services were "merely incidental" instead of significant. In addition, the judicial narrowing of the term "customers" seems tailored to case before the court; in other words, one cannot assume that a “blue pencil” redefining of other terms will lead to a similar result of creating a factual issue.

We’ll let you know if the Oregon Supreme Court takes up this opinion.

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