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Barrister Banter: Ambyr O’Donnell

The purpose of the series is to bridge the gap between junior and senior business lawyers in Oregon, fostering understanding and camaraderie. For this quarter’s installment, we interviewed Ambyr O’Donnell, M&A and IPO advisor and the winner of the 2025 James B. Castles Leadership Award. Read on to learn how what’s important to Ambyr—tech, ethics, and ringing the bell on Wall Street—has informed her successful career.

  1. Tell me about your path to being a lawyer. What inspired you to pursue this career?

    I started my undergraduate degree as a computer science major and quickly realized I didn’t love living in a computer lab. An advisor pointed out that law fit my interests in policy, history, and international relations. I took the LSAT, applied to law schools, and never looked back. My interest in tech never went away.

  2.  What is your practice area?

    I work with technology companies going through transformational phases: IPOs, M&A, international expansion, and other major growth moments. I’m a general business lawyer focused on corporate law, M&A, IP, and employment law. I work closely with board members, CEOs, founders, and executive teams to structure and drive strategic outcomes for their business.
  3. How long have you been in your current role?

    I’ve spent about fifteen years as a general counsel or chief legal officer after starting in-house right out of law school. Over time, my work has evolved into broader business advisory roles, which I absolutely love.

  4. How have you seen the practice change since you started practicing?

    Lawyers used to do legal research in physical libraries with books and send faxes or letters for written notice. Now so much of what we do is digital and far more efficient, but also less personal. In the last couple years, AI has also changed how I work. I use AI to get smarter faster, synthesize lots of data, create presentations, and simplify complex communications. I learn new things I can do with AI agents every week. I never outsource judgment and I always carefully vet any AI output before it goes to anyone.

  5. What do you wish you had known before you started working as a new lawyer?

    Your career path might not look like everyone else’s. You may not look like the other lawyers in the room. What is important is what you have to contribute. Listen more than you speak, and speak when something needs to be said.

  6. What are your career highlights?

    I’ve always wanted to stand on the platform to ring the bell on Wall Street. In 2021, I had the privilege of doing that at the New York Stock Exchange with my team at our company’s IPO. What made it even better was being able to bring my son, who was in high school at the time, onto the NYSE trading floor.

    Every deal we close for the purchase or sale of a company feels like an important career milestone. None of my career highlights were achieved alone. Business law is a team sport.

  7. What is your favorite part of the job?

    Solving hard problems with smart people and helping companies turn bold ideas into reality. At the end of the day, it’s all about people working toward something meaningful.

  8. What parts of the job do you wish you could outsource to AI?

    Scheduling and expense reports! Oh, and resolving meritless claims. Those can be so distracting and wasteful.

  9. What advice would you give a new business lawyer?

    There are many ways to create a successful career using your law degree. Seek out projects and people doing interesting things early on and put in the time. Many very successful business people started out in law.

    When I was in law school, I read a quote by former Oregon Supreme Court Chief Justice William M. O’Connell, who said: “Without ethics ours is a crass calling.” This is especially true for business law. Choose to work for good people and businesses doing good things. It matters.

  10. What advice would you give a senior lawyer who is charged with mentoring a new lawyer?

    Move past the day-to-day work. Work with the new lawyer to create a vision for what they might want to do (or at least what they could be qualified to do) in a few years. Identify specific skills and experiences they should pursue to advance their career toward their vision.

    Remind new lawyers that it is okay to take risks and support the businesses they advise in taking smart, calculated risks, so long as everything is legal and ethical.

    I had the benefit of working with an incredible mentor early on and it had a very positive impact on my career. ♦

Self-Compassion for Lawyers: Interrupting Stress and Choosing our Path Forward

Bridget Donegan, Oregon Attorney Assistance Program

There is a specific sense of relief that comes when a friend, after hearing us confide an uncomfortable truth about our inner lives, responds with ease: “Well, of course!” “Of course you’re having a hard time sleeping with all that pressure on you!” “Of course you’ve lost your confidence after what they said to you!” “Of course you’re overwhelmed!” When our distress is met with total, untroubled acceptance, a layer of our own trouble melts away. Our friend’s connection and compassion interrupt our inner turmoil and get us back on track, grounded in reality. Yes, the uncomfortable truth is still true and still uncomfortable. But a compassionate, connected perspective gives us a toehold from which we can choose our next step. We can move forward responsibly.

Compassion is a wonderful way we support each other. Directed inward, it is a powerful way we can support ourselves. In a flood of studies over the last twenty years, researchers are confirming what ancient wisdom traditions have long taught: self-compassion does not weaken our resolve or dim our ambitions. Instead, practicing self-compassion helps build resilience, reduce our distress, and increase our motivation. Amid the many demands of our professional lives, self-compassion is a way to relieve some of the internal pressures we may not even realize we add on top of all the stressors we cannot control.

Of course you are stressed!

Some stress is unavoidable, and the varied stressors of law practice are often outside of our control and can sometimes continue day after day without much relief. Depending on the lawyer, work stressors can include short deadlines, unpredictable client needs, high-stakes projects, billable hours pressure, uncertain outcomes, financial or job insecurity, competition for work or clients, office bullying or conflict, and more. We all experience potential stressors differently—you may enjoy being energized by a tight deadline, while your colleagues will find it distressing, and on another day your roles may switch. Given our high expectations for ourselves, the prevalence of potential stressors, and the fact we can always identify someone in a similar role who seems to be thriving, when we experience distress, we tend to believe that we are the problem. In other words, we think we ought to feel fine. We may think, “This is what lawyering is, so I need to be able to handle it without letting it get to me.”

I want to highlight two of the problems with that very common line of thinking. First, once we are feeling the irritability, exhaustion, overwhelm, tension, lack of motivation, etc., the stress response is already happening. We can wish that it was not, but it is irrational to believe we “should” feel differently than we do. We can aspire not to think about work when it is time to sleep, for example, but that is altogether different from thinking it is wrong that the thoughts keep coming.

Second, and relatedly, our intolerance of our stress response is self-defeating. Telling ourselves that we should not feel the way we do only puts more pressure on us: it is stressful to keep thinking that the way we are is wrong.

The upside here, though, is that our stress about our stress is something we can control. The amount of external pressure lawyers are under is real, even if someone else feels it differently than you. Your experience of that pressure is legitimate; it is the way your body knows how to muster ongoing attention and energy for things in your life that matter. Remembering that is a way to interrupt the cycle of feeling unhappy about the way things make us feel. We can offer ourselves a moment of kind acceptance that our stress response (that is, our frustration, tension, worrying, etc.) is an indication not of our weakness, but of our liveliness amid the dynamic pressures of our lives.

The elements of self-compassion

Self-compassion can feel threatening, especially for high performing individuals, because it calls on us, in the words of researcher Dr. Kristin Neff, to “stop judging and evaluating ourselves altogether.” That does not mean lowering our standards. It means accepting ourselves as we are. And studies consistently show that self-compassion improves our resilience through a variety of life challenges.

In her research, Dr. Neff has identified three elements of self-compassion: mindfulness, a balanced awareness of our difficulties, rather than over-identifying with problems; self-kindness, rather than criticism or judgment; and common humanity, understanding our predicament as part of being human, rather than feeling isolated or alienated by our pain. Any time we notice some distress, practicing a bit of compassion toward ourselves can be a helpful relief and reality check.

Mindful attention to your predicament

Compassion is, by definition, responsive. It is a discerning, motivated way of interacting with another upon noticing their suffering. Self-compassion similarly is responsive, but to our own suffering—we must be willing to turn toward our suffering, and not be absorbed into it, to practice self-compassion. Mindfully acknowledging our own suffering means holding a kind of balanced awareness without avoiding or exaggerating our present-moment discomfort. With practice, compassion allows us to see that we can choose the meaning we make of our experience, rather than being carried along or defined by the emotional force of the situation.

As we trend away from balanced awareness, we trend more toward being swept up in our distressful thoughts and feelings. Instead of saying, “I dread going to work,” we say, “I’m an anxious person” or “I can’t hack this.” When a client meeting goes terribly, we start to think, “I’m terrible.” Rather than experiencing our distress from a broader contextual perspective, our discomfort takes on outsized authority, and we begin to believe it indicates a truth about who we are. Sometimes our habit of letting our failings define us prevents us from looking truthfully at our shortcomings; the internal consequences are hard to bear. A more mindful approach notices how terrible we feel, and maybe also notices that we think “I’m terrible,” while also keeping some awareness that those feelings and thoughts will change in time.

Balanced awareness, according to Dr. Neff, “is the pillar on which self-compassion rests,” because it provides the perspective needed to bring caring responsiveness to ourselves when things are not going well. When you notice some stress without grabbing on to it or shoving it down—just seeing it, even for a moment—you are practicing this core component of self-compassion.

Kindness: Being emotionally available when life becomes difficult

Treating ourselves kindly is probably what most immediately comes to mind when we think of self-compassion. If self-criticism and shaming are at one end of a continuum, kindness is on the other. Self-kindness can sound like a simple acknowledgement with a kind tone: “This is hard right now.” “I want this so badly.” “I do not know what to do.” “This hurts.” And also, “What do I need?” “What is there I can do for myself right now?”

The kindness of self-compassion is not self-indulgence; it does not mean “anything goes.” It means moving away from self-condemnation. A lot of us have been conditioned to feel a certain amount of self-protection in being harsh with ourselves, like there is some morality there, or we are proving to ourselves that we know how one ought to behave. Experimenting with kindness toward ourselves reveals, however, that accepting the simple reality of our immediate condition is different from encouraging it in the future. Like the power in naming something, when we kindly acknowledge our distress with a willingness to help, we gain some leverage for dealing with it.

Understanding your common humanity

Finally, when we practice self-compassion, we shift away from our tendency to see our pains and hassles as unique flaws that set us apart from others. That isolating tendency might sound something like, “Everyone else is handling this fine.” “Nobody else is struggling like I am.” “I am too broken to belong here.” “I should be fine.” That feeling of being abnormal leads to feeling disconnected and lonely, exacerbating our suffering. When we practice self-compassion, we remember that life’s challenges, big and small, are inherent to being human, as are our physiological, emotional, and cognitive stress responses.

My experience is that most of us intellectually grasp that nobody is perfect. Everybody fails. But that abstract understanding often feels irrelevant when we are in our own struggles, which are decidedly not “everybody’s”; my struggles are mine and nobody else’s. When I fail, it feels highly specific and textured; it hurts in a particular way, seems to hold a truth personal to me, and is not a tidy, static thing. How could something that specific to me be universal?

The way I understand this component of self-compassion is on two levels. Although there is truth to the deep specificity of our individual experiences, the more we share with and listen to other people, the more we can directly experience our essential similarities; we do relate to each other’s pain. For many of us, that is a lesson we learn over and over again, every time we dare to confide in a trusted, caring person. We are simply more similar, and more deeply so, than we tend to remember.

At the same time, the specific details, histories, and contours of our personal experiences are unique. We cannot know another person’s inner life. But that precisely is the universality of our predicament. That experience of being not perfectly the same is shared by us all. The specificities of my struggle, those edges of my experience that do not quite line up with yours, do not mean that I am alone; those are the essence of our common humanity.

Choosing a path forward

I spent many months as a practicing lawyer living with a hum of vigilance. It felt absolutely essential to maintain a constant background level of tension so I did not miss something important, or so I could catch and fix anything that was missed. To do otherwise felt dangerous.

In my experience in law practice and at the OAAP, such periods of vigilance are not uncommon for lawyers. A small experiment in self-compassion might be worth a try for those of us feeling that anxious hum now. We can notice the hum and the tension. And then notice whatever comes next. Perhaps consider what help you might offer yourself, including talking to someone else or asking for help.

One of the greatest benefits of practicing self-compassion is more ready access to mental freedom and flexibility. Constricted thought and rigidness, on the other hand, are some of the risks of holding tight to our vigilance. When we stop straining against our own experiences, we tend to find that the pressure releases. Dropping that struggle, seeing our natural responses as the ongoing unfolding of life that they are, opens up a significant amount of space for choice. How do you want to approach your day? ♦

Winter 2026 CFIUS Update

Kassim Ferris, Miller Nash LLP

The Committee on Foreign Investment in the United States (CFIUS) has expanded its reach and impact over the past few years through jurisdictional expansion, increased penalties, stable funding, and dedicated enforcement and monitoring teams, while weathering staff turnover and growing pains. A more detailed summary of CFIUS’s powers and procedures was previously published in the September 2023 issue of Oregon Business Lawyer. In light of CFIUS’s expanded reach and heightened scrutiny, it is increasingly essential for attorneys who handle M&A, financing, and real estate transactions to know how to spot potential national security risk issues for a proposed transaction and when to call in a CFIUS specialist.

CFIUS is an inter-agency committee led by the U.S. Department of the Treasury and is empowered to investigate national security implications of foreign investments in U.S. businesses and acquisitions of certain U.S. real estate. CFIUS can impose mitigation measures and make recommendations to the President of the United States to prohibit transactions. Presidential action is not reviewable by the courts, and recent administrations have increasingly exercised these powers against perceived threats, especially those involving Chinese investors and buyers. Consequently, many prospective foreign investors in U.S. businesses have become acutely concerned about CFIUS issues. CFIUS diligence and clearance are gating issues in many transactions and require technical expertise and knowledge of complex CFIUS regulations and committee practices.

A filing with CFIUS is mandatory for certain non-passive foreign investments in “TID U.S. Businesses”: those that deal with critical technologies, critical infrastructure, or sensitive personal data. CFIUS has the power to impose penalties of up to the value of the transaction against each party that fails to file when mandatory. For all other transactions, filing with CFIUS is voluntary, but if CFIUS is not formally notified, it retains jurisdiction to investigate foreign investment transactions at any time, including after a transaction has been completed. Foreign buyers who have failed to notify CFIUS have later found themselves forced to divest U.S. operations and real estate when foreign ownership was deemed to present national security issues.

It is a common misconception that CFIUS is only an issue for large transactions. In fact, there is no size or value threshold, and CFIUS has blocked many small transactions and forced the divestiture of several small businesses (such as Emcore and MineOne) to address national security threats or vulnerabilities, including vulnerabilities that may not have been apparent or present at the time of the transaction.

Another pitfall is to assume that a particular buyer or investor is not a foreign person. U.S. domiciled entities that are directly or indirectly controlled by foreign nationals, companies, and/or governmental bodies are considered foreign persons subject to CFIUS scrutiny. And the regulatory definition of control for the purpose of CFIUS jurisdiction is broader than conventional notions of control in the corporate context. When a seller of a TID business is unable to verify the ultimate buyer’s or investor’s ownership or nationality, including for significant minority investors, then care is warranted to mitigate the unresolved risk of violating mandatory CFIUS filing requirements. In many cases this may mean demanding that the buyer or investor either join in making a filing with CFIUS or give fundamental CFIUS representations and warranties and accept strong indemnity obligations with an extended survival period.

In reviewing a transaction, CFIUS assesses evidence of the vulnerabilities of the target U.S. business in terms of susceptibility to impairment of national security, the threat posed by the foreign acquirer or related foreign persons, and the potential consequences to national security that could reasonably result from exploitation of the vulnerabilities by the threat actor. Accordingly, assessing the activities of the U.S. business and identifying the investor/buyer and its direct and indirect owners are important first steps in CFIUS diligence.

Several recent developments and CFIUS actions summarized below illustrate these principles.

Expanded jurisdiction over real estate transactions

In 2018, Congress expanded CFIUS’s jurisdiction to include the acquisition or lease by, or concession to, a foreign person of covered real estate near certain military sites and within significant ports and airports. Since then, CFIUS has continued to extend its reach through regulatory changes. The most recent changes occurred in late 2024, when CFIUS added sixty military sites to the list. The scope of covered real estate now includes 227 military sites, including sixty-four for which real estate within an extended range of one hundred miles is subject to review. Covered real estate also includes offshore training complexes (including the entire coast of Oregon and Washington) and missile fields in Colorado, Montana, Nebraska, North Dakota, and Wyoming. Nearly 30 percent of the American West is now considered covered real estate, as illustrated in the map below.

 

A CFIUS filing is not mandatory for a real estate transaction not involving a U.S. business. However, in at least one instance, a real estate acquisition provided the only jurisdictional hook for CFIUS action that resulted in a presidential prohibition and forced divestiture:

In May 2024, President Biden issued an order retroactively prohibiting the purchase of real estate near Cheyenne, Wyoming, by MineOne, a cryptocurrency mining company allegedly majority-owned by Chinese nationals with ties to the Chinese Communist Party or state-owned entities. By the time CFIUS was tipped off, MineOne had built a cryptocurrency mining facility on the property. The property was located within one mile of Warren Air Force Base, the home of the strategic command for all U.S. Air Force intercontinental ballistic missiles. It was also located across the street from a Microsoft data center handling some defense work and near a National Science Foundation supercomputing center. The order included a requirement to remove all improvements and equipment from the property. Some observers noted that the cryptocurrency mining equipment, which was made in China, not only raised concerns about surveillance but allegedly included back doors that could allow a threat actor to remotely and suddenly shut down the equipment and destabilize the power grid—potentially affecting critical national defense capabilities. Notably, if this greenfield project had been built in the adjacent vacant lot just one thousand feet further from Warren AFB, then CFIUS might not have had jurisdiction.

Enhanced penalties for noncompliance

Penalties for noncompliance with CFIUS laws and regulations also increased in late 2024. In particular, penalties for material misstatements and omissions in a submission to CFIUS were increased to a maximum of $5 million per occurrence, up from $250,000. CFIUS also established penalties for violations of a mitigation agreement—of up to the greater of $5 million, the transaction value, or the current value of the interest in the U.S. business or real estate.

The tenor of these changes is reflected in CFIUS’s announcement of several significant penalty actions over the past few years, including a $60 million fine against T-Mobile for violation of a national security agreement relating to a proposed merger with Sprint. T-Mobile allegedly failed to prevent access to sensitive data or to promptly report the unauthorized access to CFIUS.

In less egregious cases, and in cases involving first-time offenses or other mitigating factors, instead of pursuing monetary penalties CFIUS may issue a Determination of Noncompliance Transmittal (DON’T) Letter pursuant to a relatively new practice of the committee. While these letters do not result in penalties or enforcement action, CFIUS’s enforcement policy states that a DON’T Letter can be an aggravating factor in future enforcement action.

Increased funding, staffing, and enforcement capabilities

CFIUS’s mission is supported by stabilized funding, including through government appropriations and collection of filing fees of up to $300,000, imposed on a sliding scale based on the size of the transaction. Program budgets increased from $42.2 million in FY 2024 to $45.2 million in FY 2025, with about $21 million expected to come from filing fees annually. CFIUS has seen several changes in leadership and senior staff over the last three years while also growing its bench. According to program budget summaries, CFIUS now has about 110 full-time equivalent (FTE) employees. At the same time, filings have decreased, from a high of 440 filings in FY 2022 to 325 filings in FY 2024 (the last period for which data is available as of the writing of this article). Despite an increase in resources and decrease in filings, the challenges posed by staff turnover and the change in administration in early 2025 have led to delays in processing and occasional inconsistencies in mitigation and enforcement actions.

CFIUS has also sharpened its enforcement capabilities by establishing a dedicated non‑notified team that scrutinizes transactions for which the parties did not notify the committee. CFIUS now has the power to require parties to provide information needed to determine whether a transaction is covered, whether it raises national security concerns, and whether it triggers a mandatory filing requirement. This has enabled CFIUS to proactively identify and investigate more transactions that might otherwise escape review, particularly those involving foreign investors from countries of concern.

A good example of enforcement action by CFIUS on a non-notified transaction is the January 2, 2026, presidential order requiring HieFo Corporation to divest its indium-phosphide wafer fabrication business. Indium-phosphide semiconductors are critical technology that provides high-speed, high-frequency capabilities for applications such as fiber optic communications, 5G/6G transmitters, and satellite communications. HieFo acquired the business in 2024 from its former parent, EMCORE Corporation, for only $2.9 million. In the order, President Trump claimed that HieFo was controlled by a Chinese citizen and that there was credible evidence the acquisition could threaten U.S. national security. A CFIUS press release cited a risk of diversion of the supply of indium-phosphide chips. HieFo’s founders included its CEO, Dr. Genzao Zhang, who received his PhD from the University of Ottawa, Canada in 1991 and had previously worked at EMCORE in Alhambra, California for twenty years, most recently as its vice president of engineering.

The order against HieFo highlights the U.S. government’s suspicion of Chinese owners and its continued suppression of exports to China of advanced semiconductor technology and other sensitive technologies, such as supercomputers, AI chips, 6G technology, and quantum computing technologies. Enforcement actions like this can be expected to continue, resulting in ongoing fragmentation of global supply chains.

America First investment policy directive

On February 21, 2025, President Trump issued a memo regarding his America First Investment Policy. The memo largely reiterated existing policies and practices of CFIUS and other agencies but did focus on framing economic security as national security. Much of the memo is devoted to emphasizing the importance of protecting U.S. technology, businesses, and resources from the People’s Republic of China (PRC) and restricting outbound U.S. investment in Chinese companies involved in sensitive technology sectors or areas implicated by the PRC’s military-civil fusion strategy—topics already addressed by CFIUS and various other regulatory powers. Among other things, the memo included directives to:

  • ease restrictions on foreign investors “in proportion to their verifiable distance and independence from the predatory investment and technology-acquisition practices of the PRC and other foreign adversaries . . .,” and
  • create a “fast-track” process to facilitate foreign investment in the U.S. from allies, subject to requirements to avoid partnering with foreign adversaries.

In response, CFIUS announced in May 2025 that it is developing a Known Investor Program (KIP) seeking to increase efficiencies by collecting information from eligible foreign investors in advance of a CFIUS filing. Think of it as a sort of TSA PreCheck program for foreign investment. Frequent flyers will still need to walk through the metal detector, but at least they may get through security a bit faster. A pilot of the KIP was slated to run in late 2025 with a small number of selected investors. CFIUS recently solicited input from the public via a Request for Information (RFI) in anticipation of a broader rollout. The RFI suggests the KIP is likely to have strict eligibility criteria and will only be available to foreign investors that have made at least three CFIUS filings within the preceding three years.

New outbound investment security program

One other development tangentially related to CFIUS is the U.S. Treasury Department’s issuance of final rules, effective January 2, 2025, implementing the Outbound Investment Security Program (OISP) pursuant to Executive Order 14105. Under the OISP regulations, U.S. persons are prohibited from engaging in certain investments and joint venture transactions involving persons of “countries of concern” (currently, only China, including Hong Kong and Macau) that operate in certain technology sectors. Targeted sectors currently include semiconductor technologies, microelectronics, quantum information technologies, and artificial intelligence. The regulations include specific technical thresholds for prohibited transactions. For certain other outbound investments in the targeted sectors, a notification is required under the OISP regulations. Unlike the CFIUS regime, the OISP regulations do not require the Treasury Department to review or respond to a mandatory notification. And the Treasury Department has so far declined to provide advisory opinions or guidance on the scope of prohibited transactions, so U.S. persons investing in China and in businesses operated by persons with ties to China would be wise to take a conservative approach when interpreting the scope of the OISP’s prohibitions and notification requirements.

Applicable penalties are established in the OISP regulations pursuant to the International Emergency Economic Powers Act (IEEPA) and include civil penalties of $377,700 or up to twice the amount of the transaction. Willful violations are subject to criminal fines of up to $1 million and up to twenty years in prison upon conviction.

A statutory framework for the OISP was recently included in the National Defense Authorization Act for Fiscal Year 2026 (Pub. L. 199-60 at Sec. 8521). It expands the scope of targeted sectors to include high-performance computing and hypersonic systems, while defining certain limited exceptions to the scope of covered transactions. It also authorizes, but does not require, the Secretary of the Treasury to prohibit U.S. persons from knowingly engaging in covered transactions in prohibited technologies. The Secretary of the Treasury has until March 15, 2027, to issue implementing regulations.

Conclusion

Foreign investments can raise U.S. national security issues deserving of careful attention. Failure to submit a CFIUS filing, when mandatory, can subject all transaction parties to harsh penalties.  Regardless of whether a filing is mandatory, when a filing is not made, CFIUS retains the power to force the divestiture of a U.S. business or real estate even after a foreign investment or acquisition has concluded. Assessing the activities of the target business to determine whether it qualifies as a TID U.S. Business, and identifying the investor/buyer and its direct and indirect ownership, are important first steps in evaluating whether a CFIUS filing is mandatory or warranted for a proposed transaction.

Several other countries have CFIUS-like regimes. Also, new outbound investment security regulations prohibit covered investments by U.S. persons in certain sensitive high-tech businesses in the semiconductor, microelectronics, quantum computing, and AI sectors operating in China or controlled by persons with ties to China. Certain other covered outbound investment transactions in these same sectors that are not outright prohibited now require a notification to the U.S. Department of the Treasury.

As the U.S. government continues to sharpen its scrutiny of foreign investments, it is increasingly essential for deal parties and their counsel to begin their diligence on potential national security issues early to avoid big problems and hefty penalties. ♦

Beyond the Hype: What We Know So Far About the Value of AI Tools for Lawyers

Jennifer Ballard, Good Journey Consulting

In November 2025, Stephen Embry of Above the Law issued a wake-up call to outside counsel: in-house lawyers are increasingly using AI tools and experiencing efficiency gains, and it is only a matter of time before they require the same from their outside lawyers.

However, identifying one or more AI tools that will be the best fit for law practice is a daunting task. There are hundreds of AI tools for lawyers crowding the market, and there is significant hype surrounding the AI industry in general. Fortunately, there are a growing number of independent efforts to evaluate the real-world utility of AI tools for lawyers. These studies offer some data about AI tools at fixed points in time that can be used to make better informed decisions about AI tool selection.

Independent evaluations of AI tools for lawyers

Below are summaries of seven such independent studies, which individually and collectively reveal helpful insights into where it may (or may not) currently be worthwhile to integrate AI tools with your practice.

Contract drafting study 

A September 2025 contract drafting study from Legalbenchmarks.ai, a collaboration between legal professionals, AI experts, and researchers, evaluated 13 AI tools (seven legal industry AI tools and six general-purpose AI tools) against a human baseline that consisted of in-house commercial lawyers with an average of 10 years of working experience. The legal industry AI tools included in the study were August, Brackets, GC AI, InstaSpace, SimpleDocs, Wordsmith, and an anonymous tool, while the general-purpose tools were ChatGPT, Claude, Copilot, Gemini, Le Chat, and Qwen. The study found that some AI tools outperformed the human baseline in producing reliable first drafts of contracts. The study did not find a meaningful difference in the output reliability or output usefulness between the general-purpose and legal industry AI tools. The top performing tools for output were Gemini, ChatGPT, GC AI, Brackets, August, and SimpleDocs. The study concluded that while the legal industry AI tools were not outperforming general-purpose AI tools on output, they were beginning to differentiate themselves with workflow and support functionalities for lawyers, such as integrating with Microsoft Word, and offering clause libraries and templates. The most meaningful differentiator the study found among the legal industry AI tools was whether the tool integrated with existing workflow and technology. For workflow integration or support, the top performers were Brackets, GC AI, and SimpleDocs. You can read this study here.

Information extraction study 

The second study from Legalbenchmarks.ai, released in April 2025, focused on information extraction tasks for in-house lawyers. This study evaluated six AI tools, including two legal industry AI tools: GC AI and Vecflow’s Oliver, as well as two general-purpose AI assistant tools: Google’s Notebook LM and Microsoft Copilot, and two general-purpose LLM chatbots: DeepSeek and ChatGPT. All of the AI tools were scored on both accuracy and usefulness. The study found that the two legal-industry AI tools, GC AI and Oliver, received the highest combined scores, concluding that while general-purpose AI tools could match legal industry AI tools in accuracy, the legal industry AI tools delivered more value in usability and workflow integration. You can read this study here.

Vals Legal AI Report

In February 2025, Vals AI, a platform that seeks to advance generative AI with independent and scalable evaluation infrastructure, released the Vals Legal AI Report (VLAIR), which evaluated four legal industry AI tools (CoCounsel, Harvey Assistant, Oliver, and Vincent AI) and compared the results to a lawyer control group. The tools were evaluated across up to seven tasks commonly performed by lawyers (each company could opt into as many of the task evaluations as desired). One or more AI tools beat the lawyer control group on four tasks (document extraction, document question-answering, document summarization, and transcript analysis), while the lawyer control group surpassed the AI tools on two tasks (redlining and EDGAR research) and matched the highest performing tool on one task (chronology generation). Harvey Assistant, which participated in six of the seven tasks, had the strongest performance, receiving the top score on five tasks and the second-place score on one task, and beating or matching the lawyer control group in five tasks. This study can be accessed here.

VLAIR—Legal Research

In October 2025, Vals AI released an extension of VLAIR focusing on legal research. VLAIR—Legal Research evaluated three legal industry AI tools (Alexi, Counsel Stack, and Midpage), as well as ChatGPT and a human baseline of lawyers from one law firm who were all experienced in conducting legal research. The study involved 200 legal research questions. The AI tools and the lawyer baseline were each given a weighted score, with 50% of the score given to accuracy, while 40% was given to authoritativeness, meaning whether the response was supported by citations to proper sources, and 10% of the score was given to appropriateness, meaning whether the response was easily understood and could be shared as-is with others. The study found that the legal industry AI tools received the highest weighted scores, ranging from 76% to 78%, followed by ChatGPT at 74%, with the lawyer baseline scoring the lowest at 69%. Counsel Stack had the highest score of the legal industry AI tools.

Notably, the study found that when the AI tools outperformed the lawyer baseline, they did so by a large margin. Of the 200 questions included in the study, AI tools outperformed the lawyer baseline on 150 of the questions, and the average point margin was 31%.  In contrast, when the lawyer baseline outperformed the AI tools, it was by an average point margin of 9%, and typically involved questions concerning complex multi-jurisdictional analysis, judgment-based synthesis, or when a deeper understanding of context was necessary. You can read this study in its entirety here.

Vals AI LegalBench contributions 

In 2023, researchers created a benchmark called LegalBench, which included 162 legal reasoning tasks evaluated across 20 large language models (LLMs). Benchmarks are datasets and tasks that have been standardized to measure the capabilities of an AI model across an industry. Vals AI contributed to the LegalBench benchmark with a December 2025 update, which evaluated 92 AI models on legal tasks, finding that the top performing AI models were: (1) Gemini 3 Pro (87.04% accuracy), (2) Gemini 3 Flash (86.86% accuracy), and (3) GPT 5 (86.02% accuracy). You can read more about Vals AI’s contribution to LegalBench here.

Law student study 

The University of Minnesota published a study in March 2025 called AI-Powered Lawyering: AI Reasoning Models, Retrieval Augmented Generation, and the Future of Legal Practice. In this study, law students tested Vincent AI, a legal industry AI tool that was refined using retrieval augmented generation (RAG) and OpenAI’s o1-preview, an AI reasoning model, on six legal tasks, finding that one or both AI tools significantly enhanced the quality of the legal work compared to the legal work performed without AI in five out of six tasks: (1) drafting an email for a client, (2) drafting a legal memo for a partner, (3) analyzing a complaint and drafting a written analysis, (4) drafting a motion to consolidate, and (5) drafting a persuasive letter. Additionally, the study found that both AI tools significantly boosted productivity in the same five out of six legal tasks, with particular strength in tasks like analyzing complaints and drafting persuasive letters. Neither tool demonstrated improvement in quality or efficiency for the sixth task, drafting a non-disclosure agreement. The study noted that it was the only task where participants were provided a general template to use in their response, which may have reduced the potential for AI-driven quality improvement. You can read this study in its entirety here.

Legal research hallucination study 

Stanford RegLab published a preprint study in May 2024 called, Hallucination-Free? Assessing the Reliability of Leading AI Legal Research Tools. This study tested OpenAI’s GPT-4 along with three legal industry AI tools refined with RAG: Westlaw’s AI-Assisted Research, Ask Practical Law AI (both Thomson Reuters products), and Lexis+ AI, concluding that all four tools hallucinate. The hallucination rates of the RAG-tuned AI tools tested in the study were reduced compared to GPT-4 (which it found hallucinated 43% of the time) yet remained substantial. The study found that Westlaw’s AI-Assisted Research hallucinated one-third of the time, while Ask Practical Law AI and Lexis+ AI produced hallucinations in more than one of every six responses. LexisNexis and Thomson Reuters both responded that their internal testing and customer feedback demonstrated higher rates of accuracy than the study results, with Thomson Reuters asserting an accuracy rate of approximately 90% for their AI-Assisted Research tool. While the results of this study are already dated given the recent swift progression of AI developments, the Stanford study identified that the most important takeaway of its results was that the legal industry needs thorough and transparent benchmarks and evaluations of AI tools. This study can be accessed here.

What insights do these studies collectively provide?  

When these studies are considered collectively, it becomes evident that lawyers should not summarily dismiss AI tools. Several independent studies have now concluded that using an AI tool to perform certain tasks may elevate a lawyer’s work through improved quality and/or efficiency. Tasks that were found by the studies to benefit from the use of an AI tool included contract drafting, document extraction, document question-answering, document summarization, transcript analysis, drafting emails and letters, drafting complaints, analyzing complaints, drafting motions, and some legal research tasks.

In contrast, tasks where AI tools did not add value within the parameters of the studies included redlining, EDGAR research, and chronology generation. While the Minnesota law student study did not find added value in using AI tools to draft a non-disclosure agreement when the students were provided a general template to use in their response, lawyers can compare this finding to the more recent Legalbenchmarks.ai contract drafting study finding that some AI tools outperformed the human baseline of commercial lawyers with 10 years of experience in producing reliable first drafts of contracts. Additionally, lawyers can consider testing one or more AI tools for contract drafting to draw their own conclusions.

Over time, the findings from these studies can also be used to evaluate how AI tools are evolving. For example, when the findings of Vals AI’s LegalBench contributions are compared to the Stanford hallucination study, it appears that the accuracy of OpenAI’s GPT AI models has improved significantly since May 2024 (December 2025: 86.02% accuracy, May 2024: 57% accuracy). This is notable in part because many legal industry AI tools use OpenAI’s models and their competitors’ models as their underlying infrastructure.

Some of the studies concluded that it is a toss-up whether you can presently get better output from a general-purpose AI tool or a legal industry AI tool. Further, some of the studies note that legal industry AI tools are distinguishing themselves from the general-purpose AI models by offering better workflow integration and support. Additionally, lawyers should know that some legal industry AI tools may offer more data privacy and security advantages than consumer-grade general-purpose AI tools.

What else should lawyers consider when evaluating AI tool options?

Lawyers should be prepared to distinguish between independent studies, such as the ones discussed above, and in-house evaluations by the companies making AI tools for lawyers. Some AI tool studies are conducted by AI companies themselves and publicized for marketing purposes. While an AI tool company’s evaluations of its own product may provide useful data, it’s important to be mindful of the source of any data utilized for decision-making purposes.

Additionally, while the studies highlighted above have yielded helpful insights, the evaluations conducted to date have only assessed the tip of the iceberg. There are many uses for AI in legal practice and hundreds of AI tools for lawyers that have not been independently evaluated. This means that lawyers who will evaluate AI tool solutions beyond the tools and tasks included in the studies covered in this article should be prepared to do their own testing to determine if an AI tool is a good match for their organization.

Finally, AI tool selection should not begin and end with considering the AI tool options available. Instead, lawyers should start the AI tool selection process by gaining an understanding of the many possible uses that AI tools currently offer and prioritizing the technology issues experienced by their organizations. AI tools for legal research command significant attention in the legal industry, yet many lawyers have not taken time to consider whether legal research is really the highest priority technology issue that their organization needs to address with an AI tool.

Once a lawyer has clarity about where improved technology solutions are most needed in their unique practice, the information in this article becomes most useful, and better-informed decisions can be made about which AI tools deserve further consideration. Further evaluation of an AI tool prior to final selection may include testing the AI tool to assess its real-world performance and should always include a risk assessment of the AI tool’s data privacy and security policies to confirm alignment with a lawyer’s professional responsibilities. ♦

Want to learn more about AI tools for lawyers? Through June 30, 2026, use the code BIZ60 for $60 off Jennifer Ballard’s “How to Pick the Best AI Tools for Your Law Practice” CLE. Learn more here.

Barrister Banter: Daniel Gilbert

The purpose of the Barrister Banter series is to bridge the gap between junior and senior business lawyers in Oregon, fostering understanding and camaraderie. For this quarter’s installment, we interviewed Daniel Gilbert, Senior Assistant Attorney General for the Oregon Department of Justice. Read on to learn how Daniel’s cross-country law experience, from Washington, DC to Oregon, informs his words of wisdom for young lawyers.

  1. Tell me about your path to being a lawyer. What inspired you to pursue this career? 

I have always enjoyed logic and trying to piece together disparate pieces of information into a cohesive narrative. I also loved competing in games (sports and otherwise) and was good at learning esoteric rules and figuring out how to apply them when doing so would give me a competitive advantage. Law seemed like a good fit.

  1. What is your practice area?

I am a government lawyer, serving as a Senior Assistant Attorney General in the General Counsel Division of the Oregon Department of Justice. In this role, I provide legal advice to numerous state agencies as they seek to carry out the duties assigned to them by the Oregon Legislature.

  1. How long have you been in your current role?

I have been in my current position for a little more than two years and an attorney with the State of Oregon for about thirteen years.

  1. How have you seen the practice change since you started practicing?

Client expectations around response times and attorney availability have increased significantly. There is also an increased desire to use quantifiable metrics to evaluate attorney performance.

  1. What do you wish you had known before you started working as a new lawyer?

Three things. First, that you are in charge of your own career. It is critical for a young attorney to constantly step back, evaluate their career to date, and decide if they like the path they are on or if changes are necessary. Any organization, including law firms, defaults to using their employees in a way that best suits the organization’s needs. A young attorney should continually evaluate and ensure that their career is developing in a way that is conducive to their long-term needs and desires.

Second, I wish I had understood the importance of relationships and of developing a reputation for excellence and good judgment (both internally and with clients). The same piece of legal advice can be treated differently depending on who delivers it and how it is delivered. You will have a happier and more successful career if you become known as a trusted advisor who understands the clients’ needs and gives great legal advice that is tailored to those needs.

Third, keep an open mind with respect to career opportunities. When I started my career, I “knew” that I wanted to do international law. And I spent the first seven years of my career doing so while working at a large firm in Washington, DC with a practice that focused on investment treaty arbitration and representing foreign sovereigns before U.S. federal courts. But life brought me to Oregon, and I have ultimately been much happier working for state government than I was doing what I thought was my dream job.

  1. What are your career highlights?

My career highlights involve successfully guiding clients through unsettled areas of the law. As a government attorney, one highlight was successfully advising the Oregon Legislature as it sought to retain the ability to conduct redistricting when (due to the COVID-19 pandemic) the Legislature would not receive the federal census data required to conduct redistricting before the deadline for state legislative reapportionment that is set forth in the Oregon Constitution.

  1. What is your favorite part of the job?

My favorite part of the job is the number of novel issues I am asked to analyze and provide legal advice on. I have worked in state government for almost thirteen years, and it feels like nearly every week I am presented with a new circumstance to figure out.

  1. What parts of the job do you wish you could outsource to AI?

Basic legal research/case law summaries.

  1. What advice would you give a new business lawyer?

Work hard, develop a reputation for producing excellent work, and remember that professional relationships matter.

  1. What advice would you give a senior lawyer who is charged with mentoring a new lawyer?

Take the responsibility seriously. This means taking the time to get to know the new lawyer as a person and trying to figure out what they actually want to accomplish in their legal career. Advice is much more helpful when the recipient feels understood. ♦

Why Transactional Attorneys Should Care About Client Estate Plans

Natalie E. Smith, Sussman Shank LLP

Business owners often reach out to their attorneys during times of growth (to structure a new endeavor, facilitate a transaction, or finance an expansion) and during times of despair (to avoid a bankruptcy or navigate a lawsuit). Rarely do business owners reach out to discuss how a possible untimely death may impact their business. That is why it is essential for business attorneys to ask the right questions to ensure that each client’s business ownership and succession plan is fully integrated and consistent with their estate planning. Taking this crucial, extra step will add value and give your clients additional peace of mind.

They had an estate plan? Oh no!

Every good corporate attorney advises their closely held business clients to establish a shareholders’ agreement, which can cover things like voting, management, and succession planning. The same applies to an operating agreement for a limited liability company or a partnership agreement for a partnership. Most shareholders want to keep control of the business with the remaining shareholders if a shareholder retires, dies, or becomes disabled. Therefore, it is common for a shareholders’ agreement to obligate the estate of a deceased shareholder to sell that person’s shares to the corporation or to the remaining shareholders.

But what happens when a deceased shareholder’s estate plan disposes of the deceased shareholder’s shares in a different way, such as to their surviving spouse or their children? Whether the shareholders’ agreement or the deceased shareholder’s estate plan governs the decision depends on the details, but the disconnect between the two could have been avoided if the corporate attorney had asked about each shareholder’s existing estate plans. A corporate attorney could point out when a proposed transfer at death would not be permitted (or desirable) under the business and succession plan and work with a shareholder to ensure the totality of their planning is consistent.

Other issues arise when there is no open communication between the transactional attorney and their business client. Imagine that you assist with forming a limited liability company among four members, the purpose of which is to own and rent out apartment complexes (“Rent, LLC”). Rent, LLC is member-managed, and all of the members enjoy participating in the management of the business. The business is thriving and is operating smoothly with each member being involved in Rent, LLC’s management. Two years later, one of the four members dies. At that time, you discover that the deceased member had established a joint revocable trust (“Family Trust”) with her spouse—but the membership interest in Rent, LLC was held in her name, individually, not titled to the Family Trust. What happens?

A probate or simple estate proceeding would be required so that someone would have legal authority with respect to the deceased member’s interest in Rent, LLC. While a probate may be initiated immediately after death, a simple estate proceeding may not be initiated sooner than thirty days after the date of death; notwithstanding, both a probate and a simple estate proceeding require a four-month creditor claim period during which the assets are restricted. Overall, it would be unusual to administer an estate in less than six months from date of death, and during the administration, the decedent’s membership in Rent, LLC would be subject to court oversight and intervention, which could hinder the company’s management and operations. Because Rent, LLC is member-managed, the personal representative or affiant of the decedent’s estate would need to sign (or vote) as a member for each action of Rent, LLC requiring member approval. Further, the personal representative or affiant may even need court approval to take certain actions, such as approving the sale of Rent, LLC.

Additionally, the personal representative or affiant would have to work with the other members of Rent, LLC (potentially in court) to navigate the operating agreement’s terms that govern with respect to the deceased member’s interest in Rent, LLC. Court intervention would be necessary if the terms of the operating agreement contradict the dispositive provisions of the deceased member’s Will, which presumably directs transfer of the decedent’s membership interest to the Family Trust and administration for the beneficiaries of the Family Trust (what is often referred to as a “pour-over will”).

Asking your client if they have an estate plan can prevent these types of delays and conflicts. Additionally, once you know your client’s estate plan, you can help them get the most value out of it by ensuring that their business assets are properly titled and that their expectations match the reality reflected in their business and estate planning documents. This can be accomplished by discussing—often in excruciating detail—what they want to happen to their business operations when they die or become incapacitated and what would be required for the continued success of their business.

Have you seen Succession (on HBO Max)? Well, we need to talk…

It can be difficult to discuss business succession with clients, as it requires discussing their retirement, possible incapacity, and inevitable death—topics people often struggle facing head-on. When approaching this discussion with clients, it is important to have a roadmap that keeps you on track so that you hit on key topics rather than saying “So, what’s next?” Guiding your clients through this conversation will make it easier for them to discuss these topics and will also create a clear succession plan that can then be mirrored in their estate plan.

For some clients, succession planning will be straightforward. For others, it can be extremely complex. Succession planning can touch on many sensitive subjects, such as upsetting family dynamics, difficult business partners, and long-time employees. Sometimes succession means no succession and winding up; sometimes it means selling the business and distributing out all assets or net sales proceeds. Other times, succession means leaving the business in the hands of key employees who are not currently owners. In this situation, it is essential that the corporate attorney is in contact with the estate planning attorney to ensure that the dispositive provisions of the owner’s estate plan match their intended succession plan. It is often best to prepare a detailed shareholders’ agreement, operating agreement, or partnership agreement (depending on the form of entity), to which the intended successor owners will be bound. The owner’s estate plan must also require that the named fiduciaries (agent under a durable general power of attorney, trustee under a trust, and/or personal representative or affiant under a will) be bound to the terms of that agreement.

Often clients plan to leave their business—or the economic benefits of their business—to their surviving spouse and children, or to other family members who they hope will either continue their legacy or otherwise benefit from what they built during their lifetime. While this may seem straightforward, it is crucial to discuss the details. For example, let’s say Tammy owns nine hundred shares in Timber Tammy, Inc., an Oregon corporation (“Timber”), and her children Tara and Timothy each own fifty shares of Timber. You have been Timber’s corporate attorney since Tammy founded Timber more than thirty years ago. Timber is a successful timber harvesting and logging business located in Oregon, which supplies high quality wood products to vendors throughout the Pacific Northwest.

You schedule a meeting with Tammy to discuss business succession. To start the meeting, you outline the current ownership of Timber and ask about the children’s involvement. You learn that Tara is excelling in the business and has become VP of Operations. Tammy is working with Tara daily and teaching her the ins and outs of Timber. Tara’s older brother, Timothy, does not enjoy the “business” side of Timber, but loves being in the field, where he works closely with many of Timber’s employees and supervises the timber harvesting.

For Tammy, the business succession of Timber may seem clear—her two children will each receive one-half of the shares in Timber and run the business together. However, there are a few important questions you should ask: (1) When does Tammy want to retire from Timber? (2) Does Tammy intend to own all her shares in Timber until she dies? (3) Will her children own equal shares in Timber on her retirement and/or death? (4) Do her children want to co-own and together operate Timber after Tammy’s retirement and/or death? (The older sibling does physical work, and the younger sibling is in the office, so their expectations and timelines may dramatically differ.) (5) Does Tammy have an estate plan that generally benefits her two children equally; does it specifically address the transfer of her shares in Timber on her death?

Tammy responds as follows: (1) She wants to retire in seven years. (2) She thinks she wants to maintain ownership of her shares in Timber after retirement, but she is not sure exactly what the benefits and consequences of that would mean. (3) She wants Tara to own a controlling interest in Timber since she will be running the business and Timothy will be boots-on-the-ground. (4) Yes, both Tara and Timothy plan to own and operate Timber for at least the next ten to fifteen years. (5) Yes, she does have an estate plan, and she “doesn’t know what it says!”

After requesting copies of Tammy’s estate planning documents, you learn that she has a grantor revocable trust (“Trust”), which owns only 500 of her 900 shares in Timber. It directs that 350 shares be distributed to Timothy and 150 shares be distributed to Tara, in trust for life. Finally, Timothy is named as a business trustee with respect to all of Tammy’s shares in Timber (which presents issues, as only 500 of Tammy’s 900 shares are titled to the Trust, so Timothy cannot act as Business Trustee with respect to those remaining 400 shares without some form of court intervention).

You realize that Tammy’s current estate plan does not address her full ownership in Timber and is not aligned with her stated business succession goals. These differences can easily be resolved but do need to be addressed. Tammy’s full nine hundred shares of Timber should be titled to the Trust (not in her individual name). The Trust should be amended and restated to change the dispositive provisions so that, on Tammy’s death, all of her shares in Timber (whether it be nine hundred shares or some different amount, because Tammy may have more shares issued or some shares redeemed during her remaining lifetime as part of her retirement planning) be distributed 51 percent to Tara and 49 percent to Timothy. Tara should be named as the Business Trustee so that she would manage the shares of Timber (and make pertinent shareholder decisions) under the Trust’s administration.

If you hadn’t asked Tammy these questions, her goals with respect to Timber’s succession would have been thwarted by her own estate plan. Further, her existing estate plan could have caused tension between her two children. For Tammy, your questions provide value and give her the opportunity to update her planning.

Tax savings? Say more.

Tammy is so thankful for your thoroughness and advice that she sets up a joint meeting with you and her estate planning attorney. At that meeting the three of you discuss her goals with respect to Timber and updates to be made to her estate plan. Together, the three of you realize that Tammy’s shares of Timber and their disposition after her death will likely qualify for the Natural Resource Property Exemption under ORS 118.145. Under this exemption, up to $15 million of the value of a decedent’s interest in natural resource property is exempt from Oregon estate tax. Timber owns qualifying natural resource property located in the state of Oregon, and Tammy intends to maintain ownership of Timber (as Trustee of her Trust, which is a revocable grantor trust) until her death (especially since she now knows this could reduce her Oregon taxable estate by an additional $15 million). Because Tammy has always intended for her children to take over the business after her death, and her children desire to do so, this exemption is a valuable savings to Tammy and her children.

Assuming Tammy’s estate is able to take full advantage of the natural resource property exemption (in addition to the standard $1 million Oregon state estate tax exemption amount), you would have assisted her estate in saving approximately $2,062,500 in Oregon estate taxes. These savings may not have been achieved had you not met with Tammy with the goal of fully integrating her business succession plan and her estate plan.

What we can learn from Tammy’s story is that corporate and transactional attorneys have a great opportunity to add value to their work by keeping estate planning considerations in mind. Corporate and transactional attorneys need not become experts in estate planning or tax to assist their clients in these areas. Engaging local counsel to work through these matters with your clients will save them time, money, and heartache in the future by ensuring that their assets are properly distributed after their death in accordance with their wishes. ♦

Crafting Non-Competition Agreements for Mergers and Acquisitions

Erich Merrill, Miller Nash LLP

The author acknowledges the research assistance of Vivian Hernández for this article.

In the December 2024 edition of this newsletter, Justin Monahan and I cowrote an article discussing considerations of buying and selling a business from the perspectives of the buyer and the seller. Among the considerations explored was the post-closing transition process, which Justin expanded upon in a subsequent article. Another consideration included in our first article was the importance of non-competition agreements in such merger and acquisition (M&A) transactions. This article delves into the details of crafting non-competition agreements in preparation for, or as part of, M&A transactions.

Terminology: non-competes vs. other restrictive covenants

Creating non-competition agreements (or “non-competes”) is one contractual option for preventing employees from using their employer-company’s intangible business assets (e.g., customer lists, manufacturing techniques, or knowledge about suppliers) to set up a competing business or to work for a competitor after leaving the company. Non-competes are agreements in which an employee commits not to provide services to, or own an interest in, a business that competes with the company. To be enforceable, non-competes must be limited in both market area (traditionally geographic) and duration.

Other contractual methods for protecting against competitive use of a company’s business assets are non-solicitation agreements and nondisclosure agreements. For the purposes of this article, non-solicitation agreements are those under which an employee agrees not to hire or offer to hire the company’s employees, not to offer products or services to the company’s customers, or both. Nondisclosure agreements are agreements under which an employee agrees to refrain from disclosing or using information that the company considers proprietary.

Other protective agreements that companies often find desirable are work product assignment agreements and non-disparagement agreements. These agreements, while important tools for companies, are not the topic of this article.

Employee non-competes before the M&A transaction – state law restrictions

A number of business reasons can lead companies to decide that they will require non-competes from their employees. Companies that expect to engage in an exit transaction (i.e., an M&A transaction resulting in the sale of the company’s entire business to a buyer) have an additional incentive to require employee non-competes: obtaining non-competes from key employees can enhance the value of a business in the eyes of a buyer.

Counsel to such a company (or to its owners) must consider state law restrictions on non-competes before the company requires employees to agree to them. Oregon, Washington, and California, for example, each highly regulate non-competes, and in different ways.

As established in ORS 653.295, businesses with Oregon employees can require non-competes from employees but are subject to significant procedural and substantive limitations. Non-competes can be required only from salaried Oregon employees who are involved in administrative, executive, or professional roles and who make more than the threshold amount of $116,427, as of January 1, 2025. (This threshold is imposed under ORS 653.295 (1)(e).) With some exceptions, the employee must not be a licensed medical provider. The employer must have a protectible interest. Of particular significance for M&A purposes is Oregon’s requirement that non-competes be entered into at the time of initial employment or in connection with bona fide advancement. A new employee must be told of the non-compete in the job offer for the position, at least two weeks before starting work. Oregon allows employee non-competes to last for no more than twelve months. The case of Oregon Psychiatric Partners, LLP v. Henry, 316 Or. App. 726 (2022) provides a recent example in which failure to comply with the non-compete statute voided the non-compete.

Companies with employees in Oregon have other alternatives that can be effective to provide protection in lieu of a non-compete. Oregon permits both nondisclosure agreements and non-solicitation agreements. Oregon also permits bonus-restriction agreements, as defined in ORS 653.295(5). Under these agreements, a former employee can be required to refrain from competing with the company as a condition to receiving a bonus that will be paid after employment has ended.

Washington State also allows employee non-competes in limited circumstances and of limited scope. Under RCW 49.62.020, employee non-competes are unenforceable unless the company provides advance written notice to the new employee at the time of the initial employment offer or the non-compete agreement is supported by adequate consideration if it is being required after an employee has already begun work for the company. Washington does not permit companies to require a non-compete from any employee making less than a threshold amount ($126,858.83 as of January 1, 2026). Washington law also includes a presumption that any employee non-compete longer than eighteen months is unreasonable and therefore unenforceable.

Washington law strongly discourages the use of unlawful non-competes by imposing clear statutory penalties: any person harmed by an unlawful non-competition covenant can bring an action to recover the greater of actual damages or $5,000, plus attorney fees and costs. Employees or a subsequent employer are among the parties who might be harmed and are therefore permitted to bring an action to recover these amounts.

The Washington penalties for imposing a non-compete in the wrong circumstances can affect the value of a business in an M&A transaction. Companies preparing for an exit transaction may therefore prefer to rely on other means of protecting against former employee competition, such as a nondisclosure agreement.

Companies with employees in California, in some ways, have the easiest decision to make as to whether employee non-competes are appropriate. They are not. California prohibits and will not enforce employee non-competes. Under Cal Bus. & Prof. Code § 16600, any contract that restrains an individual from engaging in a lawful profession, trade, or business is void, regardless of its scope, duration, or other factors. Businesses with employees in California must rely on other means, typically nondisclosure agreements, in order to protect the business against use of intangible proprietary business assets by former employees. Traditional intellectual property protections such as patents, copyrights, and trademarks/service mark registrations are tools that businesses with employees in Oregon, Washington, or California can use for this purpose.

Non-competes in M&A transactions

The restrictions on employee non-competes in Oregon, Washington, and California are specific to the employment arena. The restrictions do not apply to non-competes that owners (limited to owners of more than a 1 percent interest in Washington) may enter in connection with the sale of their business. (See ORS 653.295(4); RCW 49.62.010(4)(d); Cal Bus & Prof Code §§ 16601, 16602, and 16602.5.) Owner non-competes are subject only to the common law requirement that such restrictions be of reasonable scope and duration. (See e.g., Eldridge v. Johnston, 195 Or. 379, (1952); Perry v. Moran, 109 Wash. 2d 691, (1987); Samuelian v. Life Generations Healthcare, LLC, 324 Cal. Rptr. 3d 596 (2024).) In virtually all M&A transactions, the buyer will require that the seller refrain from competing with the buyer (or with the business being sold) for a specified period of time.

Key negotiating points as to M&A non-compete provisions include who will be subject to the non-compete, how competition is defined, what exclusions will be specified, and scope in terms of duration and geographical area.

In an exit transaction structured as a sale of assets, the non-compete is usually directed at the selling entity. The owners of the selling entity may also be required to enter into a non-compete. In an exit transaction structured as a stock or equity sale, at least the controlling owner will be required to agree to a non-compete. Often other substantial owners will also be required to agree to a non-compete. In both types of transactions, the buyer will sometimes also require that key employees also agree to a non-compete, especially if those employees are also owners.

Numerous approaches can be taken as to the definition of competition or what constitutes a competing business. In some agreements, there is no definition of this concept, relying on the common understanding of competition to define the scope of the provision. More often, M&A agreements define a competing business as one that sells products or services that are substitutes for those sold by the acquired business, either as of the time of the transaction or at the time of the competing act after the transaction. For early stage or rapidly developing businesses, competing businesses can be defined as including those that are contemplated by the company’s research and development activities. While such a clause is desirable from the buyer’s standpoint, sellers should be cautious about agreeing to this flexible definition since it may be difficult after the transaction to understand exactly what business activities are prohibited.

Exclusions from the definition of competing business can be critical if a seller is selling one business but retaining another business. The retained business should be excluded from the noncompetition clause. The seller should also consider whether the retained business is likely to expand into additional sectors, in which case those should also be excluded from the definition.

The geographic (or market) scope and duration of the non-compete are also items that are commonly negotiated. The appropriate market scope of the non-compete will depend on what business is being sold, where its customers and operations are, and whether it is a bricks-and-mortar or virtual business, among other things. Attorneys for a buyer need to keep in mind that courts can strike down overly broad geographic or market scopes that the courts find unreasonable.

The duration of an M&A non-compete is typically three to five years after the closing date of the transaction, as to owners. If employee non-competes are part of the acquisition agreement, the duration will usually be substantially shorter, must be tailored to comply with applicable state statutes, and runs from termination of employment rather than from the closing date of the transaction.

Common non-compete mistakes by buyers

Buyers often stumble when formulating the non-compete provisions of an M&A transaction. A common mistake that buyers make is requiring existing employees to sign non-competes at the time of the business acquisition, without any significant consideration other than continued employment. In Oregon, amending an employee’s existing agreement to include a non-compete results in an unenforceable agreement if no bona fide advancement accompanies the amendment. In other states without statutory restrictions on non-competes, such an amendment can be subject to a challenge that there was no consideration, or inadequate consideration, for the amendment.

A less frequent (in my experience) but still surprising mistake is for buyers to require non-competes from employees in California or other jurisdictions where such provisions are clearly prohibited or unenforceable. This mistake usually occurs when the buyer and their attorney are located in states where non-competes are not restricted.

In both cases, attorneys representing buyers need to familiarize themselves with the laws of the states where the acquired business and its employees are located, to make sure that non-compete requirements comply with applicable state laws.

Diligence considerations

Both buyers and sellers should include the topic of non-competes in their diligence review and preparations for a potential M&A transaction. For the seller, the diligence review should include confirming that all existing non-compete agreements with employees have been appropriately documented, and that any agreements complied with applicable state law at the time they were entered into.

For the buyer, the diligence review for non-competes should focus on which non-compete obligations have been imposed on employees, whether obligations that do exist comply with applicable law and will be enforceable by the buyer, and whether any non-compete agreements that the seller has put in place may violate applicable law and subject the buyer to claims or penalties. For example, a buyer of a business with employees in Washington could be held liable to the employee or a former employee’s new employer for non-competition agreements entered into by the seller if those agreements did not comply with Washington’s requirements for such agreements.

Federal Trade Commission

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule that would have significantly restricted the ability of employers to require employees to agree to non-competes. The final rule has been stayed by the U.S. District Court for the Northern District of Texas (Civil Action No. 3:24-CV-00986-E) and remains the subject of litigation as well as uncertainty as to future action by the FTC. Unless and until the rule takes effect, restrictions under state law rather than federal law determine the limits on non-competes.

Practice tips

Attorneys representing sellers in M&A transactions, or representing companies preparing for an exit transaction, should consider the following factors when advising a client on non-compete agreements:

  • When advising a company on non-competes prior to an M&A transaction, confirm whether applicable state law permits the non-compete for the employees of interest. If a non-compete is permitted, explore with the client whether a non-compete may be unacceptable as a business matter and whether other restrictive covenants or traditional intellectual property protection may provide adequate protection against competition by former employees. As to any non-competes that are permitted and desired, provide the client with appropriate documentation of the non-compete and assist the client in obtaining the non-compete from employees in accordance with procedures required by applicable state laws.
  • When advising a seller in an M&A transaction, counsel the seller or owner who will be subject to the non-compete as to what parameters of the non-compete can be negotiated. The extent to which a non-compete requested by the buyer may be acceptable will likely depend to a large extent on the seller’s or owner’s future business plans. For example, an owner planning to retire may be unconcerned about a broad non-complete with a long duration and wide geographic scope.

Attorneys representing buyers in M&A transactions should consider the following matters when advising a client on non-compete agreements:

  • Confirm that any non-compete requested by the buyer has a scope that will likely be considered reasonable and will therefore be enforceable.
  • Confirm that any non-compete requested of the seller’s employees (or an owner in their role as an employee) complies with applicable state law. In particular, if a non-compete will be required of an existing seller employee who is not currently subject to a non-compete, confirm that the new non-compete is structured in such a way as to meet any requirements of applicable state law (if permitted at all).
  • Counsel the buyer that employee non-competes cannot always be relied on. For example, if an employee moves to California, courts will no longer enforce a non-compete that may have been enforceable in the state in which it was originally entered (when the employee lived in or worked from another state).

Conclusion

Non-competition agreements from sellers, owners, and key employees are an important part of most M&A transactions. Business owners preparing for an exit transaction should consider the extent to which obtaining non-competes from new and existing employees may be desirable. Attorneys advising sellers or buyers in connection with an M&A transaction need to be familiar with the statutory limitations on non-competition agreements and ensure that any such agreements are structured to be enforceable to the extent permitted by applicable law. ♦

Barrister Banter: Michael T. Faulconer

The purpose of the series is to bridge the gap between junior and senior business lawyers in Oregon, fostering understanding and camaraderie. For this quarter’s installment, we interviewed Michael T. Faulconer, an attorney at Gleaves Swearingen in Eugene, Oregon. Read on to learn about how Michael found his way from Tokyo to Eugene, his advice about the importance of critical thinking and a work-life balance, and his take on AI.

  1. Tell me about your path to being a lawyer. What inspired you to pursue this career? 

My path was not a traditional one. With degrees in International Studies and Japanese in hand, I went to Tokyo after college and worked for a little over three years in a Japanese government office as an international relations consultant. Following that, I went to work for a Japanese tech company. It wasn’t until I was in my late twenties that I began to think about law as a potential path for me. Although those experiences were priceless, I was looking for a career that would afford me a greater opportunity to apply analytical and problem-solving skills. I was very drawn to the idea of law school and the practice of law because there is no better medium for developing and applying those skills, particularly in a way that allows me to do good for people and for causes that I care about. That led me to Michigan Law School and becoming a lawyer.

  1. What is your practice area?

My practice focuses on business transactions and general corporate guidance. Although there is a particular focus on mergers and acquisitions (M&A), I enjoy assisting clients with all sorts of transactions, including commercial real estate sales/leases, financing transactions, and commercial contracts of all types. I got my start at Sidley Austin in Los Angeles, where my focus was mainly on finance and international transactions, but gradually my interest led me more toward M&A and other types of transactional work. I learned much during my time in LA, but making the move to Eugene gave me the opportunity to broaden my practice to include all types of transactional work, which was a welcome change.

  1. How long have you been in your current role?

I started at Gleaves Swearingen in 2007, and became a partner soon after. My role has grown to include firm administration as part of our management committee.

  1. How have you seen the practice change since you started practicing?

I think it has become less personal. It feels like we spend less time in the same room with clients and other legal professionals than we used to, and we don’t get to know people as well. Since I started practicing there have been numerous technological advancements that have enhanced our ability to provide services to our clients, but not without a cost. In this sense, I tend to think of technology as both a blessing and a curse.

  1. What do you wish you had known before you started working as a new lawyer?

A great work/life balance is the key to happiness. Life is too short to spend all of it working. After a few years in LA, I realized that I was missing out on too much, so I made the decision to move back to Oregon and situate myself in a community where I can have it all—a sophisticated business law practice, meaningful involvement in my community, family time, and time to spend on things that I enjoy. One of those things is coaching. I coached club and high school softball teams for fifteen years, giving me the opportunity to make a positive impact on the lives of young people in our community in a way that I couldn’t achieve with my lawyer hat on.

  1. What are your career highlights?

Over the years there have been many large deals involving many millions of dollars, and it’s easy to point to those and say those are the highlights. But there have also been many deals involving small business owners, nonprofits, and other members of our community that have been just as rewarding. Every time we helped a client achieve their goal counts as a highlight in my book.

(On the coaching side, two 6A state titles as the head coach at Sheldon High School stand out as highlights that I’m proud of. Go Irish!).

  1. What is your favorite part of the job?

I love solving puzzles and coming up with creative solutions to problems, and those are big parts of this job. I also enjoy my colleagues and coworkers that I work with on a daily basis. We have an amazing team here at Gleaves, and it makes the job all the more fun and rewarding when you have great people around you.

  1. What parts of the job do you wish you could outsource to AI?

You are asking the wrong guy. I’m pretty convinced we are just a few short steps away from finding ourselves in The Matrix or being destroyed by Cylons (shoutout to Battlestar Galactica). But all joking aside, being a good lawyer requires critical thinking, good judgment, and the ability to communicate with people, and these are things that can’t be outsourced. They are also what makes being a lawyer challenging and fun.

  1. What advice would you give a new business lawyer?

Don’t be in too big of a hurry. Focus on the quality of your work. Think critically, challenge assumptions, write clearly and with precision, and review thoroughly. Then double check everything. Good things will come to young lawyers who do these things.

  1. What advice would you give a senior lawyer who is charged with mentoring a new lawyer?

Law school was great for developing critical thinking skills, but I think most of us learn how to be a lawyer from other lawyers. Remember those who mentored you, and be patient and generous with your time in paying it forward. ♦

FinCEN’s New Reporting Requirement for Nonfinanced Residential Real Estate Transactions: What Business Lawyers Need to Know

Taylor K. Gersch, Gleaves Swearingen LLP

Introduction

Effective December 1, 2025, the Financial Crimes Enforcement Network (FinCEN) will implement a new nationwide reporting requirement aimed at helping government agencies prevent illicit actors from anonymously laundering money through residential real estate transactions. This requirement, issued by the US Department of Treasury, is set forth in the final rule 89 Fed. Reg. 70258 (Final Rule) published on August 29, 2024. Efforts are being made to overturn the new reporting requirement, but for now, the effective date continues to be December 1, 2025.

The Final Rule requires certain individuals involved in real estate transactions to report to FinCEN information about themselves, the transferor, the transferee, the real property, and the payment information when the transaction involves a nonfinanced transfer of residential real property to a trust or legal entity. The final rule curtails the ability of illicit actors to evade the scrutiny of financial institutions that have Anti-Money Laundering (AML) programs, Countering the Financing of Terrorism (CFT) programs, and Suspicious Activity Report (SAR) requirements.

How lawyers may be affected

Business lawyers may very well find themselves in the position of filing one of these reports with FinCEN come December 1. One of the most common scenarios where this reporting requirement will arise for lawyers is where a married couple owns residential property and they want to transfer the property into a legal entity. This qualifies as a nonfinanced transfer of residential real property to an entity. If there is no closing or settlement agent involved, and the attorney filed the deed with the recorder’s office, then the lawyer has an obligation to file the report with FinCEN.

To understand whether a transaction is considered a reportable transfer, let’s walk through the basics with a hypothetical case study.

Your client wants to purchase a small ranch-style home in Eugene from her aunt. She wants to pay with cash, and she wants to buy it in the name of her limited liability company because she plans to remodel the home and use it as a rental property.  Is this a reportable transfer according to FinCEN’s new rule? Yes, and here’s why:

Residential real property

The small ranch style home is a residential property and therefore meets the first element for a reportable transfer. Residential real property is property located in the US that meets one of the following requirements:

  • Contains a structure designed principally for occupancy by one to four families (includes single-family houses, townhouses, and entire apartment buildings)
  • Is land (vacant or unimproved) on which the transferee intends to build a structure designed principally for occupancy by one to four families
  • Is a unit designed principally for occupancy by one to four families within a structure (e.g., a condominium)
  • Are shares in a cooperative housing corporation

Additionally, the transfer of mixed-use property may be reportable if a portion is considered residential real estate (e.g., a single-family residence located above a commercial enterprise).

Nonfinanced transfer

The client’s LLC is paying all cash to purchase the home, and thus this transaction is a nonfinanced transfer. A nonfinanced transfer is a transfer that does not involve an extension of credit to all transferees that is both:

  • Secured by the transferred residential real property; and
  • Extended by a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions.

Types of nonfinanced transfers include all-cash transfers and transfers without consideration (i.e., gifts). Do not think that a nonfinanced transfer can only be a cash sale. A nonfinanced transfer can also include private or seller financing since those lenders often do not have an obligation to maintain AML or CFT programs or have SAR requirements.

Exceptions to reporting

The client’s proposed transaction does not fall under any of the following exceptions where a transfer is not reportable:

  • A transfer that is a grant, transfer, or revocation of an easement
  • Transfer resulting from the death of an individual, whether pursuant to the terms of a will, the terms of a trust, the operation of law (transfers from intestate succession, surviving joint owners, or transfer on death deeds), or by contractual provision (transfers from beneficiary designation)
  • Transfer incident to divorce or dissolution of marriage or civil union
  • Transfer to a bankruptcy estate
  • Transfer supervised by a court in the U.S.
  • Transfer for no consideration made by an individual, either alone or with their spouse, to a trust of which that individual, their spouse, or both of them are the settlor(s) or grantor(s)
  • Transfer to a qualified intermediary for purposes of 1031 exchange
  • Transfer for which there is no reporting person

Reporting person

Now the question is who actually files the report for the client. The final rule institutes a cascading approach to determine primary filing responsibility, and the lawyer should evaluate the parties involved in the transaction and whether any have the primary filing responsibility over the lawyer. A good rule of thumb is that if there is no closing or settlement agent involved, the lawyer is likely up next if they filed the deed with the recorder’s office.

Assuming the lawyer is required to file the report with FinCEN, the lawyer must file information about themselves, the transferee, the transferor, the real property, and the payment information. Much of the information required is similar to that collected under FinCEN’s Corporate Transparency Act, particularly regarding beneficial ownership, though the rules are not identical.

Electronic filing, retention of records, and penalties

Once the lawyer compiles all the necessary information for the report, the lawyer electronically files the information in a “Real Estate Report.” The report must be filed by the later of (1) the final day of the month following the month in which closing occurred or (2) thirty calendar days after the date of closing. The reporting person must maintain a copy of the certification by the transferee or transferee’s representative as to the identities of the beneficial owner of the transferee for five years. But the reporting person is not required to retain a copy of the real estate report.

The regulation does not explicitly address potential penalties for failing to file a report. Instead, according to the Federal Register, “FinCEN believes that it is unnecessary to list potential penalties in the regulatory text because the applicable penalties are already set forth by statute,” including the Bank Secrecy Act.

At the end of the day, the client can still purchase the small ranch-style home. But the lawyer will need to analyze the potential reporting obligations they may have under the cascading approach. ♦

Addendum 01/20/2026: The original posting of this article included a confusing definition of a non-financed transfer (under “Non-financed transfer”). The wording has been corrected.

Addendum 10/30/2025: The original posting of this article stated that “The report must be filed by the later of (1) the final day of the month in which closing occurred”. It has been corrected to “The report must be filed by the later of (1) the final day of the month following the month in which closing occurred”.

Addendum 10/10/2025: On September 30, 2025, FinCEN announced the postponement of the reporting requirements of the Residential Real Estate Transfers Rule until March 1, 2026.

Oregon’s SB 426 (2025): What It Does, Why It Matters, and How the Construction Industry Should Respond

Jacob Zahniser, Miller Nash LLP

Introduction

On June 9, 2025, Governor Tina Kotek signed Senate Bill 426 into law. SB 426 rewrites an important part of the liability picture in the Oregon construction industry by making property owners and prime contractors potentially jointly and severally liable for unpaid wages owed to unrepresented (i.e., non-union) employees of subcontractors at any tier. The law takes effect January 1, 2026. This article summarizes SB 426, traces its legislative history and purpose, explains the mechanics of how SB 426 accomplishes its purpose, identifies the main risks SB 426 creates for lenders, owners, and prime contractors, and recommends practical risk-management measures to alleviate those risks.

Summary of the text of the bill

In plain terms, SB 426 adds new sections to ORS chapter 652, allowing civil actions to recover unpaid wages (including fringe benefits, penalties, interest, and attorney fees) from an owner and prime contractor when a subcontractor does not properly pay an “unrepresented employee.” Per SB 426 § 2(1)(i), an “unrepresented employee” is a person that is “not represented by a construction trade labor organization that has established itself or its affiliates as the collective bargaining representative for persons performing work on a project” or “not covered by a collective bargaining agreement” with a procedure or mechanism for recovering unpaid wages.

Key features of SB 426 include:

  • Joint and several liability: Per SB 426 § 2(2), the owner “shall be jointly and severally liable with” the prime contractor “for any unpaid wages, including fringe benefit contributions and penalties” owed to an unrepresented employee who worked on the project. Neither the owner nor prime contractor can avoid liability by claiming the person was an independent contractor “unless the person qualifies as an independent contractor under ORS 670.600.” SB 426 creates a “rebuttable presumption” that a person performing labor on a construction project is not an independent contractor.
  • Who may sue: SB 426 authorizes an unrepresented employee, an authorized third-party representative (e.g., a worker advocate or payroll compliance organization), or the Oregon Attorney General to bring a civil action to recover unpaid wages, interest, penalty wages, damages, and attorneys’ fees.
  • Notice requirement: Before filing a lawsuit, the claimant must provide notice to the owner and prime contractor that specifies the alleged violation and the nature of the claim. The notice, however, does not limit the owner’s or contractor’s liability or prevent amendment of the complaint later. The owner or prime contractor has twenty-one days from the date of the notice to correct the alleged violation.
  • Records requirement: Upon request, subcontractors are required to provide the owner and prime contractor the following records: (1) certified payroll reports with sufficient information to determine whether the subcontractor has paid all wages earned by its employees working on the project, (2) the names of all its employees working on the project and whether the employee is an independent contractor, and (3) an affidavit attesting whether the subcontractor or any of its principals have been involved in any wage claim in the last five years, and the outcome of that claim.
  • Statute of limitations: An action to recover unpaid wages must commence within two years from the date when the wages and fringe benefits became due.
  • Scope: SB 426 applies to wages (and related compensation) for labor performed on a project “within the scope of the construction contract” and reaches unrepresented employees at any tier of subcontracting.

Those are the core statutory mechanics. The enrolled bill and digest provide the exact statutory language and technical definitions inserted into ORS chapter 652. These can be found here.

History of the bill

The measure originated as part of a wave of efforts to address wage theft and enforce wage-payment obligations on construction projects where the worker who is shorted pay may be several contracting tiers removed from the owner. Media coverage and employer organizations debated the bill’s merits and possible unintended consequences while worker advocates and labor organizations supported the bill as an enforcement tool. Legislative analysis and stakeholder commentary accompanied committee hearings and floor debate.

National and local legal and business outlets (including labor-advocacy groups and employment law firms) published early analyses warning of the bill’s implications and describing how it differs from prior Oregon law, which placed more limited direct liability on owners and prime contractors for subcontractor wage violations. Opponents include the National Association of Minority Contractors, the National Federation of Independent Business, and Multifamily NW. They expressed concern that expanded liability could increase project costs, lead owners and prime contractors to be more restrictive in who they contract with, create friction in multi-prime and public-private contractual arrangements, and disproportionately impact emerging business owners (such as Minority Business Enterprises (MBE) and Women Business Enterprises (WBE)) that may not have the administrative resources needed to comply with SB 426’s requirements.

Supporters emphasized the need to close enforcement gaps that leave workers without a remedy when subcontractors go out of business or otherwise fail to pay their laborers.

Purpose of the bill

By expanding the pool of potential defendants (owners and direct contractors), SB 426 aims to ensure workers recover unpaid wages when the immediate employer fails to pay. Supporters say this reduces barriers, like collection difficulties when a subcontractor has little assets or disappears, leaving workers uncompensated.

Exposing owners and prime contractors to liability creates financial incentive for those parties to verify payroll compliance down the subcontracting chain, requiring better oversight, stronger contracting terms, or prequalification of subcontractors.

Authorizing certain third-party representatives and the Attorney General to sue expands enforcement capacity beyond individual workers bringing their own claims.

In short, the policy goal is worker protection and deterrence of wage theft by reallocating enforcement leverage to parties higher in the contracting chain.

How the bill achieves its purpose

SB 426 achieves its purpose through three legal mechanics. First, SB 426 creates a statutory right to pursue owners and direct contractors for unpaid wages (jointly and severally). SB 426 increases the set of financially responsible parties a claimant can pursue. That directly helps wage recovery where the paying subcontractor is either insolvent or otherwise judgment-proof.

Second, by authorizing not only workers but also third-party representatives and the Attorney General to bring action, the bill reduces practical obstacles (language, fear of retaliation, lack of legal resources) that may otherwise prevent workers from suing for unpaid wages. This creates more enforcement activity and a higher likelihood of remedies.

Finally, by creating a two-year limitations period and statutory recovery of wages, fringe benefits, penalties, interest, and attorney fees improves prospects for full recovery, SB 426 makes lawsuits more attractive to plaintiffs and their counsel—again increasing enforcement reach.

The combination of these changes is deliberate: increase who can be sued, who can sue, and what can be recovered, thereby closing gaps in wage enforcement that leave workers uncompensated.

Risks to lenders, developers, and general contractors created by the bill

While SB 426 advances worker protection, it creates significant business and legal risks for industry stakeholders.

First, owners now face joint and several liability for unpaid wages, exposing the ownership entity, often a single-purpose entity, to significant unexpected claims. Note, SB 426 §2(7) specifically excludes projects relating to the owner’s primary residence or where the project “consist[s] of five or fewer residential or commercial units on a single tract….” For those owners not excluded under SB 426, they may demand more conservative contracting, including stronger indemnities, escrowed wage funds, or expanded vetting of the trades, each of which increases transactional friction and project costs.

Second, prime contractors are now on the hook not only for their own payrolls but potentially for wage shortfalls several tiers down the subcontracting chain, adding contingent liability and potential cash-flow stress if they must post bond or pay claims. Further, allowing third-party representatives and the Attorney General to sue makes litigation more likely. Prime contractors may face more frequent claims, discovery burdens, and reputational exposure, which may be factored into overall project costs.

Third, lenders rely on predictable cash flow from projects and clear priority of liens. Wage claims against owners/prime contractors could complicate borrower creditworthiness, cause liens or judgments that impair loan collateral, or force lenders to become involved in resolving claims to protect loan performance. SB 426 may require lenders to adjust underwriting assumptions, require stricter borrower covenants (e.g., payroll compliance representations), or demand additional protections (e.g., escrowed funds, increased reserves) to account for contingent wage liabilities lasting up to two years from substantial completion.

Fourth, smaller subcontractors, particularly MBE/WBE, may find it harder to obtain work if owners and prime contractors restrict the subcontractor pool to reduce exposure. At a minimum, prime contractors will certainly negotiate subcontracts to reallocate or limit exposure under SB 426, leading to nonstandard contract terms, increased subcontract administration and paperwork, and a reduced willingness from subcontractors to engage in the project.

How to alleviate the risks of SB 426

SB 426 does not make the risk of a wage claim unavoidable. Nevertheless, lenders, owners, and prime contractors can take measured, practical steps to manage exposure and preserve project viability.

Lenders will build the possibility of wage-related claims into loan underwriting: increase reserves, adjust loan-to-cost metrics, and require borrower representations about payroll compliance processes and cash reserves for payroll. Lenders could impose loan covenants that require borrowers to provide regular payroll compliance certifications and maintain escrow accounts for payroll disbursements on financed projects. Lenders may also investigate title insurance and litigation searches that include wage-claim risk assessments. Finally, lenders could include reporting requirements and third-party inspections to detect potential payroll problems early and require corrective action before claims escalate.

Owners can require the prime contractor to include contractual warranties and strong indemnities for payroll compliance by subcontractors and express duty to defend against third-party wage claims. Owners should make sure indemnities are clear, enforceable, and backed by insurance/bonds where possible. Note, indemnities do not change statutory liability to third parties; rather, indemnities shift risk among contracting parties. Further, owners can consider escrow accounts or retainage expressly tied to payroll compliance structured so that a portion of contract funds is available to cover potential wage claims without unduly impeding subcontractor operations. SB 426 §3(4)(a), (b) specifically allows the owner or prime contractor to “withhold payment to a subcontractor” if the subcontractor fails to provide the required certified payroll records and/or in the event the owner or prime contractor paid the subcontractor’s employee directly. Finally, owners can consider requiring payment and performance bonds with explicit payroll claim processes and include contractual representations of payroll compliance as part of the progress payment applications and as a condition to release retainage.

As for prime contractors, first, they should tighten subcontractor prequalification (financial health, payroll practices, reference checks) and require payroll reporting or third-party payroll-surplus verification for critical trades. They should consider including explicit payroll-payment obligations, audit rights, indemnities, and strong remedy provisions to subcontractors. At a minimum, prime contractors should start requiring subcontractors to provide payroll records, certified payrolls, and proof of tax and fringe benefit payments on demand, if not as part of the pay application process.

Second, prime contractors should implement subcontractor onboarding checks, periodic audits, and real-time payroll verification (via payroll service providers or clearinghouses). Subcontracts should include payroll compliance clauses tied to the release of progress payments or final payment, subject to the statutory restraints of ORS 701.625, Oregon’s prompt pay act.

Third, prime contractors should consider limiting tiers of subcontracting or using subcontractor prequalification pools to reduce the number of unknown payroll actors on a project. Where multiple tiers are unavoidable, prime contractors should require the immediate subcontractor to warrant payment of lower-tier labor and to carry responsibility for flow-through payments.

Finally, prime contractors may require subcontractors to carry appropriate insurance, maintain adequate working capital, and provide payment & performance bonds (where commercially viable).

Conclusion

SB 426 represents a significant policy shift in Oregon: it prioritizes worker recovery and deterrence of wage theft by widening the net of potential defendants and empowering third-party enforcement. SB 426 will benefit many workers who historically have had little practical remedy when subcontractors fail to pay. At the same time, however, the law reallocates contingent risk upward in the contracting chain and increases litigation probability, with real implications for owners, prime contractors, and lenders. To address the risks of SB 426, owners, prime contractors, and lenders will need clear contract drafting, tighter subcontractor vetting, payroll monitoring, and escrow/bonding strategies. The next few months (before SB 426’s January 1, 2026 effective date) are a critical window for the industry to adapt: review contract templates, update procurement and underwriting practices, and put compliance programs in place so projects continue to move forward while workers’ wage claims are enforced more effectively. ♦