Or. Psychiatric Partners, LLP v. Henry
Or. Psychiatric Partners, LLP v. Henry
Opinion of the Court
*472Plaintiff, Oregon Psychiatric Partners, LLP (OPP), appeals a judgment dismissing with prejudice OPP's complaint against defendant, Henry, a psychiatric nurse practitioner formerly employed by OPP. Plaintiff sought to enforce a noncompetition agreement that it had entered into with defendant; the trial court concluded that the agreement was unenforceable, granted defendant's motion for a directed verdict, and dismissed the complaint. On appeal, we conclude that, under ORS 653.295(4)(b), the agreement is at least in part enforceable as a "covenant not *401to *** solicit or transact business with customers of the employer" and that the trial court therefore erred in dismissing the complaint.
"LIMITED NON-COMPETITION. 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. Pre-existing patients established with Nurse Practitioner in her private practice prior to the date of this contract shall be exempt from this restriction."
(Uppercase in original.) The contract also included a severability clause stating:
"The invalidity of any term or provision of this agreement shall not affect the validity of any other provision. If all or any portion of any provision of this agreement is held to be enforceable for any reason, the relevant provision or provisions shall be enforced to the extent permitted by law and so as to most fully accomplish the parties' objective intent."
In the fall of 2014, OPP's owner proposed modifying defendant's pay structure in a manner that would reduce her per patient income. Defendant rejected that proposal and told OPP that she would be quitting, effective February 2015. Defendant also told OPP that she considered the noncompetition agreement that she had entered to be unenforceable.
*474In accordance with that belief, defendant opened her own practice in Eugene upon leaving OPP and continued to treat a number of the patients that she had first treated while working for OPP.
In response, OPP sued to enforce the noncompetition agreement, seeking injunctive relief and disgorgement of defendant's earnings *402"from current or former patients of [OPP]." As noted, the case proceeded to a bench trial. In a pretrial motion, plaintiff moved to strike as insufficiently pleaded defendant's "affirmative defense" that the parties' agreement was unenforceable under ORS 653.295 ; the trial court denied that motion. Later, at the conclusion of plaintiff's case-in-chief, defendant moved for a "directed verdict," specifically relying on her defense that plaintiff had not shown that the parties' agreement met certain requirements of ORS 653.295(1), which, as set out above, states that a noncompetition agreement is "voidable and may not be enforced" unless it meets those requirements. Plaintiff contended that the parties' agreement satisfied the requirements of a valid noncompetition agreement under ORS 653.295(1), but also argued that those requirements were ultimately immaterial because the agreement fit within the statutory exclusion in ORS 653.295(4)(b), which provides that subsection (1) "do[es] not apply to *** [a] covenant not to solicit employees of the employer or solicit or transact business with customers of the employer."
The trial court granted defendant's motion, ruling that the agreement did not satisfy the requirements of ORS 653.295(1), because defendant had not been paid on a "salary basis." See ORS 653.295(1)(b) (requiring that the employee be "a person described in ORS 653.020(3)," which, in turn, requires that the employee earn a salary and be "paid on a salary basis"). When asked by plaintiff to specifically address "the exception to the statute for prohibitions on dealing with the employer's customers," the court reiterated its earlier conclusion that the agreement was a noncompetition agreement and said that it was "not excluded." The court subsequently entered a general judgment dismissing plaintiff's claims with prejudice; plaintiff appeals that judgment.
*475On appeal, plaintiff assigns error to the trial court's denial of its motion to strike and the court's ruling granting defendant's motion for a directed verdict. We reject without written discussion plaintiff's argument that the trial court erred in failing to strike on pleading grounds defendant's "affirmative defense" that the parties' agreement was unenforceable under ORS 653.295, and we discuss only plaintiff's argument that the parties' agreement is enforceable under ORS 653.295(4)(b) as a "covenant not to *** solicit or transact business with customers of the employer," or "nonsolicitation agreement."
As noted, ORS 653.295(4)(b) provides that the requirements and limitations of subsections (1) and (2) of the statute do not apply to "[a] covenant not to solicit employees of the employer or solicit or transact business with customers of the employer." And, as the parties' arguments reflect, the *476application of that statute in this case turns on the meaning of the phrase "customers of the employer" and, specifically, on whether the *403term "customers" encompasses the persons described in the noncompetition agreement: "any patients who have received services by [defendant] at OPP." To answer that question, we apply the framework set out in State v. Gaines ,
Starting with the text of ORS 653.295(4)(b), we note that words of common usage "typically should be given their plain, natural, and ordinary meaning." PGE v. Bureau of Labor and Industries ,
Statutory context also supports that understanding of "customers of the employer." We find guidance in common-law restrictions on noncompetition agreements, which were well established in 2007 when the legislature amended ORS 653.295 to add paragraph (4)(b). See Fresk v. Kraemer ,
That background suggests that the legislature enacted ORS 653.295(4)(b) to enable employers to protect no broader a scope of customer relationships than would have constituted protectable interests under the common law. Any broader interpretation of "customers" such as plaintiff urges would cause the exception in paragraph (4)(b) to swallow the general rule set forth in subsections (1) and (2), including paragraph (1)(c)'s requirement of a protectable interest. That is, if *404paragraph (4)(b) provided an exception for agreements that prohibited soliciting or transacting business with parties with little or no ongoing relationship with the employer, then that exception would allow for agreements that inhibit *478competition to much the same degree as blanket agreements not to compete. See ORS 653.295(7)(d) (defining "noncompetition agreement" as an agreement not to "compete with the employer in providing products, processes or services that are similar to the employer's products, processes or services"). It is unlikely that the legislature intended to permit the requirements of subsections (1) and (2) to be so easily circumvented, especially given that most of those requirements were enacted in the same bill that added paragraph (4)(b). See Or. Laws 2007, ch. 902, § 2.
The specific legislative history of ORS 653.295 (4)(b) further supports the understanding that the phrase "customers of the employer" requires a more substantial relationship than former or incidental patronage. As introduced, the bill that ultimately included the text codified at ORS 653.295(4)(b) did not provide an exception for nonsolicitation agreements; instead, the bill would have established another circumstance in which the enforcement of noncompetition agreements was prohibited, namely, where an employer had laid off the employee subject to the agreement.
*479The Senate passed the bill as amended. In the House, the bill was further amended to add the requirements now codified as ORS 653.295(1)(b), (c), and (d). At a public hearing on the House version, an employment attorney explained the need for the nonsolicitation exception, especially given that ORS 653.295(1)(b) only allowed standard noncompetition agreements to be enforced against "exempt employees," i.e. , salaried professionals. Audio Recording, House Committee on Judiciary, SB 248, May 24, 2007, at 1:40:00 (statement of Randall Sutton, Saalfeld Griggs PC), https://olis.leg.state.or.us (accessed Aug. 16, 2018). That witness explained that nonsolicitation agreements were appropriate for certain nonexempt employees, such as sales agents, who are employed to "develop relationships with customers," making the customer "more likely to follow that person to the next place."
"In other words, if I was a dentist and I was in partnership with someone else [and] the other party owns the business, I can't go take the client list from the company I work for and solicit those individual patients to try and build my own company should I want to open one up. So [the bill] also protects that as well, *** and I don't believe any employee should solicit the client list of a company they're working for."
*405
Thus, by permitting agreements that prohibit former employees from soliciting or transacting business with *480"customers of the employer," the legislature appears to have intended for ORS 653.295(4)(b) to allow an employer to enforce an agreement not to solicit or transact business with persons or entities who would reasonably be expected to return to the employer for purposes of doing business when the employer-employee relationship ended. The legislature would likely have understood those "customers" to be the ones who would naturally appear on a business's "client list," which is the interest that the legislature intended to protect. That is not to say, as defendant suggests, that a person ceases to be a customer of the employer once the person voluntarily stops doing business with the employer in favor of the employee's new business.
We turn to the application of ORS 653.295(4)(b) in this case. Looking at the parties' agreement, which by its terms prohibits defendant from treating "any patients who *481have received services by Nurse Practitioner at OPP," we agree with defendant that it is broader than the exception provided by ORS 653.295(4)(b). For example, the agreement would prevent defendant from doing business with a person whom she had treated only once on her first day at OPP, regardless of any relationship-or lack thereof-that the patient had with OPP. That person would not necessarily be a "customer[ ] of the employer" as we understand that phrase. Therefore, the agreement as written would restrict competition to a degree not permitted under ORS 653.295(4)(b).
That does not, however, render the parties' agreement void. As we understand plaintiff's argument, it contends that the trial court should have permitted its case to go forward at least to the extent that the parties' agreement was enforceable, even if it did not fully qualify under either ORS 653.295(1) or (4)(b). And there is authority for that position. Under longstanding Oregon law, "when an 'agreement is partly legal and partly illegal, if the legal may be separated from the illegal, the legal part will be enforced.' "
*406Montara Owners Assn. v. La Noue Development, LLC ,
The Supreme Court's decision in Eldridge , which it relied upon in Montara Owners Assn. , is instructive. In *482Eldridge , a decision that predated the statutory provisions at issue here, a noncompetition agreement prevented the defendant from pursuing his trade for 10 years in "the entire states of Oregon and Washington."
"The basic purpose of the contract justifies its severance as to territory *** in those places where defendant's acts are actually in competition with the business of plaintiffs. Defendant *** should not be permitted to escape his solemn obligation upon the mere technical theory that the territorial extent named in the contract was in general terms too broad when, without in any manner doing violence to the primary intent and purpose of the contract, but actually in strict compliance therewith, a reasonable territorial area may be severed therefrom."
Here, as in Montara Owners Assn. , nothing in ORS 653.295(4)(b) suggests that the legislature intended to preclude partial enforcement of overbroad nonsolicitation agreements. Moreover, through the severability clause of the parties' contract, defendant expressly agreed that its terms would remain enforceable "to the extent permitted by law and so as to most fully accomplish the parties' objective intent." Allowing plaintiff to enforce the agreement to the extent it can show that defendant engaged or sought to engage in business with its "customers" would accomplish that intent.
*483We therefore consider whether plaintiff made a prima facie showing that defendant had violated the enforceable aspect of the parties' nonsolicitation agreement. At trial, plaintiff presented evidence that defendant, after leaving OPP, treated 34 patients whom she had first seen during the 20 months that she worked at OPP. The owner of OPP testified without objection that patients have reasons, such as convenience and familiarity, to continue seeking treatment at the same clinic even if a provider leaves. On appeal, defendant maintains that the 34 patients identified by OPP cannot be viewed as having been "customers" of OPP when she solicited or transacted business with them, because OPP had "voluntarily terminated its *407relationship" with those patients.
Reversed and remanded.
ORS 653.295(4)(b) provides a statutory exception for certain agreements that might otherwise be subject to the requirements and limitations of ORS 653.295(1) and (2), the statute that the trial court relied on in dismissing plaintiff's complaint. In part, ORS 653.295 provides:
"(1) A noncompetition agreement entered into between an employer and employee is voidable and may not be enforced by a court of this state unless:
"(a)(A) The employer informs the employee in a written employment offer received by the employee at least two weeks before the first day of the employee's employment that a noncompetition agreement is required as a condition of employment; ***
"*****
"(b) The employee is a person described in ORS 653.020(3) [requiring, among other things, that the person '[e]arns a salary and is paid on a salary basis'];
"(c) The employer has a protectable interest ***[; and]
"(d) The total amount of the employee's annual gross salary and commissions, calculated on an annual basis, at the time of the employee's termination exceeds the median family income for a four-person family ***.
"(2) The term of a noncompetition agreement may not exceed 18 months from the date of the employee's termination. The remainder of a term of a noncompetition agreement in excess of 18 months is voidable and may not be enforced by a court of this state.
"*****
"(4) Subsections (1) and (2) of this section do not apply to:
"*****
"(b) A covenant not to solicit employees of the employer or solicit or transact business with customers of the employer."
The parties tried the case to the court without a jury. In a bench trial, a defendant's motion for directed verdict is better understood as an ORCP 54 B(2) motion for involuntary dismissal "on the ground that upon the facts and the law the plaintiff has shown no ground for relief." See Marlow v. City of Sisters ,
Because we ultimately conclude that the trial court erred in dismissing plaintiff's complaint (because the agreement was, in fact, at least in part enforceable as a nonsolicitation agreement under ORS 653.295(4)(b) ), we need not decide whether the trial court erred in dismissing the complaint based on its determination that a requirement of ORS 653.295(1)(b) -that the employee have been paid on a salary basis-had not been met. Accordingly, we do not address that aspect of plaintiff's appeal.
The word "customer" is derived from "custom," in the sense of "habitual patronage of an establishment." Webster's at 559.
Protectable interests under ORS 653.295(1)(c) include "trade secrets, as that term is defined in ORS 646.461"; "competitively sensitive confidential business or professional information that otherwise would not qualify as a trade secret, including product development plans, product launch plans, marketing strategy or sales plans"; and interests specific to media broadcasters. Defendant does not dispute that plaintiff has a valid protectable interest within the meaning of ORS 653.295(1).
There were initially two similar bills amending ORS 653.295, both of which were referred to the Senate Committee on Commerce. SB 248 (2007); SB 616 (2007). The committee held a single public hearing on SB 616 before proceeding with SB 248, and it is apparent that the hearing influenced the committee's consideration of SB 248.
That argument might be plausible if ORS 653.295(4)(b) were restricted to agreements not to solicit customers of the employer. But an agreement not to "transact business with customers of the employer" would be meaningless if a person ceased to be a customer of the employer at the moment that they chose to instead patronize the employee's new business, and defendant does not dispute that she "transact[ed] business" with her former patients. We recognize that a prohibition on transacting business with customers-as opposed to soliciting that business-may well be something that many experienced business attorneys would have placed in a traditional noncompetition , rather than nonsolicitation, agreement. As a result, that prohibition would be subject to, among other limitations, the requirement that it "not exceed 18 months from the date of the employee's termination," ORS 653.295(2), a limit that does not apply under ORS 653.295(4)(b). Given that a prohibition on transacting business with former customers could be viewed as exceeding the legislative concerns that warranted an exception for nonsolicitation agreements, the legislature may at some point wish to reconsider how far that exception should extend. We, however, construe only the text that the legislature has given us.
To the extent defendant argues that the notice OPP gave her patients when she announced her departure changed the status of those patients, that would not affect the validity of the parties' agreement, even if it might affect its application. See 293 Or. App. at 483, 429 P.3d at 406-07.
ORS 30.140(1) provides that, "[e]xcept to the extent provided under subsection (2) of this section," a provision in a construction contract is void if it requires the indemnitor to indemnify another against damage "caused in whole or in part by the negligence of the indemnitee." The exception in ORS 30.140(2) provides that "[t]his section does not affect any provision in a construction agreement *** to the extent that" the damage "arises out of the fault of the indemnitor" or its agents.
When defendant left OPP, OPP notified defendant's patients that it had "the capacity to continue providing care to some, but not all, of [her] current patients" and that they should contact OPP if they "would like to continue [their] care" at OPP. An OPP employee later referred patients to defendant, although OPP's owner testified that the employee was not authorized to do so. Defendant argued to the trial court that those facts constituted a waiver of plaintiff's right to enforce the noncompetition agreement, but she does not reprise that argument on appeal.
Because the trial court dismissed plaintiff's case before defendant put on her own case, it remains to be seen whether defendant will introduce evidence that any of those patients had ceased to be customers of OPP before defendant left or that their patronage had been merely incidental. At that time, the finder of fact can address the significance, if any, of OPP's notice to the patients defendant had treated while at OPP.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.