What Triggers the Beginning of a Non-Compete?

In 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....

Non-Competes/Non-Solicitations: What is reasonable?

Courts in Indiana have uniformly held that covenants not to compete or not to solicit, while being in restraint of trade, can nevertheless be enforced if they are found to be “reasonable”.   Whenever a loaded term like “reasonable” is used, the meaning of such term is always in the eye of the beholder.   The “reasonableness” of the geographic region involved and time period during which the restriction applies have led to significant litigation and legal expenses.  However, the one thing that many attorneys overlook when analyzing these cases is that such covenants are only enforceable if there is a legitimate proprietary interest that is deserving of protection.   For instance, if the departing employee is going to work for a company which is not a competitor, or is going to perform a task different than what that employee performed for the now offended employer, it is possible to attack the enforceability on the grounds that there really is no proprietary interest worthy of protection.   Given the fact that the Indiana Supreme Court has said these types of covenants are “disfavored by the law”, counsel should always analyze first whether or not there is actually any proprietary interest substantiating the...

Non-Solicitation/Non-Compete Agreements – One Size Does Not Fit All

We recently were again approached by potential clients concerning a review of non- competition and non-solicitation covenants contained within employment agreements. We often receive these types of inquiries, both on behalf of employees and businesses. In fact, Tom Blackwell, a shareholder in Hopper Blackwell, P.C., handled one of the more well known non- compete cases in the State of Indiana. [Dicen v. New Sesco, 839 N.E.2d 684]. While any detailed analysis of the law surrounding non-compete and non-solicitation agreements is too broad of a topic for any one post, we have written about some of those issues before. However, what became apparent from the agreements that we were asked to look at last week is that certain employers are having all of their employees, regardless of the employee’s role at the business, sign the same form non-compete/non-solicitation agreement. The problem becomes that certain language that may be applicable to certain employees would not be applicable to others. For example, language that makes sense for a sales person may not make any sense for an engineer or executive. Indiana law is clear that non-compete and non-solicitation agreements are disfavored by the law, which means that courts will look for any opportunity to not enforce them. Furthermore, a court will not rewrite your agreement. With some simple editing, non-compete agreements can be drafted to fit the particular situation and individual, and thereby greatly increase the probability that the court will enforce that agreement and protect the employer’s interest. Conversely, if the employer chooses not to tailor the agreements to fit the particular individual situation, the employer must understand that courts will...

Enforceability of Non-Competition Agreements

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,...

Non-Competiton Agreements; Is there an interest to protect?

A common question that business lawyers are asked about is the enforceability of non-competition agreements, or “non-competes”.The general topic of non-competition agreements requires far more discussion than can be completed in a single post. I will address other issues in later posts. As a very general rule, even thought the prevailing wisdom is that “judges hate non-competes”, in Indiana non-competition agreements are enforceable so long as the terms are reasonable in terms of time, geography, and the type of activity prohibited. Of course, what is reasonable is going to be determined on a case-by-case depending on the type of business, the customer base, the role of the employee, and many other factors. Businesses should be aware, however, that non-competes are strictly construed against the employer, and courts will look for any excuse not to enforce a non-compete so that an individual may to continue to work in his chosen field. While Indiana strongly favors the freedom to contract as parties see fit, public policy does not favor any restraints on trade, including restraints on a person’s ability to work. One area that is sometimes overlooked initially is whether the employer can demonstrate that it has a legitimate business interest to protect through the enforcement of the non-compete. If the employer cannot show it has a legitimate interest to protect, then it may not enforce the non-compete. That interest to protect can be as obvious as a patented trade secret or other confidential information, or as “soft” as goodwill. If the real issue is the customers, then a “non-solicitation” agreement may be the better alternative, or at least a supplement...