Miller v. Kroger Co.

Citation: 82 F. App'x 557Docket: No. 02-35137

Court: Court of Appeals for the Ninth Circuit; November 24, 2003; Federal Appellate Court

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The Kroger Company appeals a partial summary judgment in favor of Robert G. Miller, which is affirmed due to the non-competition clause in Miller's employment agreement being unenforceable under Oregon law (Or.Rev. Stat. 653.295). The statute prohibits non-competition agreements in employment unless they meet specific exceptions, which include: agreements made at the start of employment, upon a bona fide advancement, or as bonus restriction agreements. Kroger claims that the 1998 Fred Meyer employment agreement qualifies under the first exception, as it was signed in anticipation of the merger with Kroger, which took effect on May 27, 1999. However, a new contract was signed by Miller and Kroger on September 16, 1999, effective July 22, 1999. 

The Oregon Court of Appeals has ruled that the term "initial employment" refers to the earliest period of employment, as demonstrated in previous cases. In one case, a non-competition agreement signed a year after employment was deemed void, while another signed three days after employment commencement was upheld as valid. The plain meanings of "initial" and "employment" suggest that "initial employment" refers to the very beginning of an employee's service, leading to the conclusion that Kroger's non-competition clause does not satisfy the statutory requirements.

The 1998 Fred Meyer agreement was negotiated prior to the merger with Kroger and was not in effect when Mr. Miller commenced his employment with Kroger. The district court determined that Kroger did not provide evidence of an oral non-competition agreement at the time of Mr. Miller's initial employment. The Kroger agreement became effective on July 22, 1999, nearly two months after Mr. Miller started working there, and therefore, it was not contemporaneous with his employment. The agreement does not qualify under the first exception of Or.Rev. Stat. 653.295. Kroger's claim that the non-competition clause falls under the 'bona fide advancement' exception was analyzed. The Oregon Court of Appeals suggested that 'bona fide advancement' refers to an actual promotion. Definitions from the American Heritage Dictionary clarify that 'subsequent' indicates a promotion following initial employment, while 'bona fide' denotes authenticity and 'advancement' means a promotion in rank. Consequently, a 'subsequent bona fide advancement' requires a genuine promotion after initial employment. The interpretation aligns with federal district court cases indicating that mere increases in pay or benefits do not constitute a bona fide advancement. Mr. Miller did not receive a salary increase, benefits, or changes in responsibilities under the Kroger agreement, leading to the conclusion that the bona fide advancement exception does not apply. Kroger also contends that the non-competition clause is a 'bonus restriction agreement,' which is enforceable under Or.Rev. Stat. 653.295(4). It argues that 'bonus compensation' includes 'severance compensation.' The law allows for the enforcement of bonus restriction agreements and limits penalties for competition to forfeiture of unpaid bonus compensation. The interpretation of 'other bonus compensation' remains unaddressed by Oregon courts. The principle of ejusdem generis applies, indicating that 'other bonus compensation' must refer to items similar to profit sharing, defined as a system where employees earn a share of business profits.

'Other bonus compensation' must be linked to company profits or performance metrics, allowing for shared positive outcomes between the employee and employer. A bonus is defined as an additional payment to an employee beyond regular compensation. The Supreme Court of Oregon is expected to interpret 'other bonus compensation' as: (1) a payment for services, (2) supplementary to regular compensation, and (3) contingent on favorable company performance. If the company fails to generate profits or meet performance expectations, 'other bonus compensation' is not awarded. Within the Kroger severance agreement, only the pro rata bonus is performance-related, while Mr. Miller's overall severance pay does not correlate with performance measures. Therefore, the Kroger agreement does not qualify as 'limited to other bonus compensation' per Or. Rev. Stat. 653.295. Kroger's assertion that the statute is a narrow restriction aimed at protecting unsophisticated employees is unsupported by the statute’s language, which does not differentiate based on employee sophistication. The Oregon legislature did not specify exceptions for certain employee classes in this statute, unlike other statutes, and the court lacks the authority to add such exceptions. Consequently, the non-competition clause is found to violate Or. Rev. Stat. 653.295, and the request to certify this issue to the Supreme Court of Oregon is denied. The decision is affirmed and is not subject to citation in this circuit without adherence to Ninth Circuit Rule 36-3.