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What Triggers the Beginning of a Non-Compete?

hagenow2In a recent case decided by the Indiana Court of Appeals, the judges unanimously agreed that a 10 day break in employment with a prior employer started the running of the non-compete agreement between that employer and its employee, despite the fact that same employee was rehired by that same employer 10 days later.

     At the time of the employee’s original hire, he was asked to sign a non-compete agreement, which he did.  He was subsequently fired.  Ten days later his employer offered to revoke the termination and allow him to return to his prior position.  The employee returned to his position but the employer did not ask the employee to sign a new non-compete agreement.  Approximately 2 ½ years later, the employee left that employment and immediately began working for his former’s employer’s competitor.

     The employer filed a lawsuit seeking to enforce the non-compete agreement that the employee signed at the time of his original hire.  The employer argued that because the termination was “revoked”, and the employee rehired, the non-compete agreement signed when the employee was originally hired should still remain in full force and effect.

     The Indiana Court of Appeals rejected the employer’s argument and ruled in favor of the employee.  The Court noted certain principles related to non-compete provisions, which we have previously discussed here.  Included among these are the fact that covenants not to compete are in restraint of trade and are not favored by the law; they are strictly construed against employers and are enforced only if reasonable; and those covenants must be reasonable with respect to legitimate protectable interest of the employer.

     The Court of Appeals held:

Mindful that non-compete agreements are disfavored by law and strictly construed against the employer, we conclude there is no issue of material fact [Employee] was indeed separated from [Employer] on October 16, 2009, which marked the starting point of the two year restrictive period of the non-compete agreement.  Absent the execution of a new non-compete agreement on October 26, 2009 or a written extension of the prior non-compete agreement, the employee’s restrictive period ended on or about October 16, 2011.  Therefore, at the time of entering into an employment relationship with [Competitor] in May of 2012, [Employee] was no longer bound by the provisions of the non-compete agreement.

     The obvious lesson here for employers is that a re-hired employee needs to sign a new non-compete agreement, or at least some sort of document acknowledging that the previous non-compete agreement has been extended to fill any gap in employment.  Indiana courts will enforce contracts according to their plain, ordinary, and clear terms.  Therefore, it is a worthwhile exercise to put together written contracts, signed by all necessary parties, to accurately document what the parties’ intent is with respect to their agreements, including non-compete and other types of agreements.


Law Does Not Always Keep Pace with the Rest of the World


Lawyers rely upon previous court decisions when determining what advice to give to clients. By reading previous decisions based upon facts similar to a particular situation, a lawyer can best advise the client what is likely to happen and how to approach the problem.  For this reason, lawyers rely on the law generally being the same year after year.

The law can and does change, however.  In fact, sometimes a court will actually reverse one of its prior rulings.  The 7th Circuit Federal Court of Appeals recently did just that, and noted it is “not attractive” to “move from one side of a conflict to another,” but because the Court has a duty to apply the relevant law in a way to avoid “unnecessary litigation,” then the Court must do so.

Furthermore, as we all know the world changes, and sometimes changes very quickly.  It is amazing to think that the iPhone was not introduced until October 2007. Think about how much the world has changed as a result of the introduction into our lives of the iPhone/ Smartphone.  Looking back a few years further, the Internet used to be a novelty, and yet now is a practical necessity to everyday life, school and business.

However the process for changing the law is often quite slow, and so situations arise where technology and the world change so fast that the law is unable to keep pace and so there is no legal precedent to deal with new situations.  As a result matters  must be resolved using laws that were not really designed to deal with issues in the modern world, and there is no case law to guide the attorneys or the parties.

So what to do when the old meets the new, or stated another way, a situation arises as a result of the new (e.g. the Internet) which is governed by laws that have been in existence for years before anyone even considered something like the Internet or a Smartphone.

In a recent case decided by the Indiana Court of Appeals, one of the judges, in her dissent (disagreement) to the court’s ruling, looked at this phenomenon.  In the case, the LaPorte County Convention and Visitor Bureau announced at a public meeting that the Bureau was intending to begin using the phrase “Visit Michigan City LaPorte.”  A person who attended that meeting was then instructed by her employer (Serenity) to immediately register the domain name “”

Later on the same day as the announcement, when the Bureau went to register the website address, it discovered that it had already been purchased by Serenity.  The Bureau filed a lawsuit against Serenity.

The Bureau was successful on two separate occasions at the trial court, and the trial court issued an injunction that prohibited Serenity from using the website address. However, the Indiana Court of Appeals reversed the trial court, and ruled that the phrase “Visit Michigan City LaPorte” was not protectable, and that Serenity’s use of the phrase did not create any confusion concerning who was using the phrase.  The Court of Appeals noted that the existing law requires that someone who is seeking to protect a phrase, trade name, etc., must demonstrate that the phrase or name was previously identified with a particular company or product.  Because the Bureau had not established that it was already using the disputed phrase, it could not meet the requirements of the law.

In her dissent, Judge Riley noted among other things that the law concerning “unfair competition” has not kept pace with the times. She wrote:

[the law at issue] was enunciated in a time when men drove a cart and horse and life proceeded more slowly, but they are difficult to apply to an era where messages can be sent at the speed of light and goods can be purchased by the push of a button.  Although it is frequently feasible to pour new wine into old bottles, here, the old rule – albeit still valid – simply cannot keep up with the modern advances in technology.

After noting that many other courts are moving away from the strict requirements that were in place when Indiana’s law was enacted, she opined that it was an opportune time for the Indiana legislature to change the law to more accurately fit the realities of the modern day world:

In light of Indiana’s sparse and outdated case law, I would urge our legislature and Supreme Court, if the opportunity arises, to look beyond the man and cart method . . . and instead usher Indiana into the technological realities of the 21st century by formulating tools appropriate to handle the complexities of the internet’s realm. 

It remains to be seen how the legislature will respond to this case.  There are numerous other laws still on the books that do not match the realities of the modern day world.  We will simply have to wait to see how quickly those laws are amended or replaced.


Damage Limitations in Logistics Contracts

Thomas B. Blackwell

As the “logistics” industry has boomed, many small businesses have tried to expand their businesses from just transportation to warehousing and even fulfillment, without having thought through the ramifications of their newly offered services.   Conversely, some warehousing companies have begun to offer transportation services either directly or as “brokers”.   These enterprises need to pay close attention to limiting their damages for providing services which they may not have extensive experience providing.   The UCC provides helpful provisions which can allow parties to specifically limit damages (to a per pound amount, or other measure).   Often clients think of provisions like this, buried in a contract, as “boilerplate” language.   However, most “boilerplate” is in contracts for very specific reasons and can prevent some very unpleasant ramifications when a problem occurs.   Service providers can substantially reduce their risk by taking advantage of these damage limitation provisions and then manage risks more economically with insurance or reinsurance.   The days of a handshake deal are over and operators who do not want to incur the cost of hiring an attorney to draft a good contract are incurring the risk of financial disaster.


Avoiding Tax Sales in Indiana

circ3    In Indiana, parties generally have one year following a tax sale to redeem the property before the tax sale purchaser will take title to the property.  Nevertheless, to redeem requires the redeemer to pay a premium of 10% plus interest to the tax sale purchaser, so property owners and creditors have a significant incentive to prevent the property from being sold at tax sale.

Although each county sets the date for its own tax sale, all Indiana tax sales occur each fall.  Pursuant to Indiana Code §6-1.1-24-5, properties may be set for tax sale if both installments from the previous year have not been paid (in the case of vacated properties, only one installment from the previous year must be unpaid).  For example, properties are eligible for the Fall 2014 tax sale if the property owner failed to pay the taxes due in the Spring and Fall of 2013.

The County certifies the list of properties to be sold at tax sale anytime between January 1 and July 5.  Most counties certify their list of properties on or around July 1.  Pursuant to Indiana Code §6-1.1-24-2(a), once a property has been certified for tax sale, all delinquent property taxes owed through the date of certification must be paid in order to have the property removed from the tax sale.

Therefore, if a party wants to keep a property from being certified for tax sale, that party must ensure that it has paid the Spring tax installment from the previous year before the County certifies the list of properties (or if the property is vacant, the Spring and Fall installments from the previous year).  Once a property has been certified, however, the amount that must be paid to have the property removed from the tax sale increases to include not only the Spring taxes from the previous year, but also the Fall taxes from the previous year and, assuming that the certification did not occur until after Spring taxes were due for the current year, those taxes as well.  As an example, for 2014 tax sales, the property will not be certified if the Spring 2013 taxes were paid prior to the date of certification.  However, to have the property removed from the tax sale list between the date of certification and the tax sale date, Spring 2013, Fall 2013, and Spring 2014 (assuming certification occurs after May 15, 2014) all must be paid.  While these are all amounts owed that would need to be paid at some point, waiting until after the certification date will significantly increase the amount that must be paid now to avoid the tax sale.


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