We have written before about non-competition/non-solicitation covenants that are included in many employment contracts as well as purchase agreements involved in the sale or purchase of a business. We recently were involved in several situations which have again reminded us of the importance of understanding the types of terms and conditions that will be enforced under Indiana law in non-compete and non-solicitation covenants, and those which will not.
Non-competition agreements are not favored by courts. In our experience, judges will look for any way to find such agreements unenforceable so as to allow an employee to continue to work in his or her chosen profession. However, Indiana is a freedom of contract State, which means that the courts will enforce these non-competition provisions so long as they are reasonable in their scope. The reasonableness requirement and scope applies to the time, geographic area, and types of services that an individual is prohibited from engaging in following termination of employment with a company. In the event that there are terms that are either missing or so broad as to be deemed “unreasonable,” a court will refrain from rewriting the covenant for the benefit of either party, but instead will either strike any unreasonable terms or read the agreement exactly as written. The court will not add any terms that are not in the original agreement. After doing so, if it appears that the scope is still unreasonable in any respect, the court may not enforce that agreement.
A type of provision that may well be deemed unreasonable is one that contains no limitations on geographic restriction. For example, an individual working for a company in a particular line of business may be prohibited from working for a competitor of that business within the geographic region in which the business typically operates. However, to prohibit that employee from working in that industry anywhere in the world, even if the company does not operate internationally, may well be deemed unreasonable. In such a circumstance, if there was no geographic limitation, a court could very well refuse to enforce that covenant as being overbroad and therefore unenforceable. Alternatively, there could be circumstances where a very broad geographic definition would be enforceable in the event that it was a highly specialized company that did operate internationally and had very few competitors around the world.
While courts will look for reasons not to enforce these non-competition agreements, they are enforceable under Indiana law. Therefore, before signing such an agreement an employee needs to review that agreement to make sure that he fully understands exactly what he is signing. For example, most “standard” non-compete provisions provide that if the employee is terminated for any reason, then the employee is prohibited from working for a competitor or soliciting customers of the prior employer for some period of time following that termination of employment. The practical effect of that provision is that an employer could fire the employee without cause, and then enforce the non-compete/non-solicitation provision against that employee. While such a result hardly seems equitable, in a freedom of contract State a court may very well enforce that sort of agreement. We would expect that to especially be the case where the parties are sophisticated professionals such as doctors, accountants and the like.
It is impossible to predict if your particular non-competition provision will be enforceable. These cases are all very fact specific and therefore require analysis of the particular situation before making any determination about what a court might do in terms of enforcing or not enforcing the agreement. The important thing to remember is to read your contract and make sure you understand exactly what it says (or does not say) and what the practical effect may be on your particular circumstance. If you are unsure, it is often well worth the money to find an attorney with experience in dealing with these types of agreements to review the contract and discuss with you your particular circumstances, and then you can make an informedbusiness decision as to whether or not you are willing to live with the consequences of signing the particular non-competition provision in your contract. You may actually be able to negotiate away some of the more onerous terms of the agreement, especially those which allow the employer to terminate you without cause and still enforce the non-competition provisions. However, the time to try to negotiate those terms is before you sign the contract.