October 24, 2018

Whether you’re an employer or employee, chances are you’ve run across a non-compete agreement at some time or another. They’re surprisingly common, yet workers often mistakenly sign one without thinking it through. On the flip side, employers can struggle to enforce a poorly drafted non-compete. 

With room for mistakes on both ends, it’s time to shine some light on how these agreements are drafted, what Indiana laws say about them, and their potential impact.

What Is a Non-Compete Agreement?

A non-compete agreement is a contract typically between an employer and its employee, but they are also sometimes used within co-owners of an organization. 

Usually, the agreement restricts a person from working for a competitor or creating a competing business during or after their employment. The intent is essentially to protect business trade secrets, proprietary knowledge, and access to customers. These agreements can be critical to help ensure customers aren’t wooed away by a former employee or that direct competition with insider knowledge doesn’t suddenly pop up nearby.

What Does the Law Say About Non-Compete Agreements in Indiana?

In order to be enforceable in Indiana, a non-compete clause must be reasonable throughout the terms of the agreement. Many courts do not smile upon non-competes, simply because they can be seen as inhibiting a person’s ability to make a living. 

Indiana non-compete laws have changed in recent years, as the practice has come under more scrutiny at the state and federal levels. Specifically, most health care professionals can be subject to non-competes, but in Indiana, new non-compete agreements for primary care physicians are now unenforceable.

Overall, Indiana has some of the highest standards for upholding non-compete agreements in a court of law.

Five Essentials of a Robust Non-Compete Agreement

A non-compete agreement needs to be drafted carefully and include reasonable restrictions to help it hold up in court. The following areas are important components of a solid non-compete.

1. Minimal length of time. A non-compete agreement usually restricts a former employee for a set period. Once the time is up, the employee can work where and how he or she chooses. In general, a non-compete agreement will last two to three years or less. However, in some cases, Indiana courts have upheld non-competes lasting up to five years. When drafting your own, keep in mind that less time is often more enforceable if your agreement is ever contested in court.
2. Limited geographical area. Non-competes should include a limited location. If the restricted area is too broad, the contract could be vulnerable to invalidation. What stands as reasonable will depend upon the company and type of work done. For example, a doctor’s non-compete agreement may include the city where he practiced, plus a 30-mile radius. But it probably shouldn’t restrict a doctor who worked in Indiana from opening a practice in New York if you want it to be enforceable.
3. Reasonable scope of restricted activities. In general, the court is more likely to uphold an agreement with limited restrictions. Typical limitations include contacting existing customers, working for a direct competitor, or opening up the same type of business nearby. So as an employer drafting a non-compete, think carefully about what ex-employee activities might harm your business.
4. Specialized info worth protecting. Known as “protectable interests,” examples include goodwill, confidential information, proprietary formulas, customer lists, and protecting trade secrets. In Indiana, the courts have consistently ruled that common skills, routine knowledge, and general information do not count as things a business needs to protect.
5. Valuable consideration. The courts look for benefit on both sides when examining non-competes. If the agreement is contingent upon employment, then the job itself will suffice. However, if employees sign a non-compete after employment begins, the worker is usually offered a monetary bonus or raise in exchange.

How To Get out of a Non-Compete in Indiana

As an at-will employment state, Indiana tends to favor employers. However, as non-competes have become more common, they have also come under increased scrutiny. Indiana law requires employment agreements to be fair, and not unjustly inhibit a person’s ability to make a living.

With that in mind, there are a few ways that can help you challenge a non-compete agreement:

• Breach of contract. You may be held to your employment contract, but so is your employer. If your employer breaches your employment contract in any way — and it contains an agreement not to compete against them — the non-compete clause may be unenforceable.

• Unreasonable terms. As mentioned previously, to be enforceable in Indiana, a non-compete must be reasonable in its scope of restricted activities and geographical area, and have a limited time frame associated with it. If any of the terms are unreasonable or excessive, you may have grounds to challenge the agreement.

• Publicly available information. Many non-compete agreements will attempt to include restrictive covenants related to sharing trade secrets or other private information. In this case, the burden of proof is on your prior employer to show that the information they’re restricting in their agreement is in fact private, or not publicly available, and they have a legitimate business interest in protecting it. 

Get Help From a Lafayette Non-Compete Lawyer

With the increased prevalence of non-compete agreements, it’s important to understand the ins and outs before drafting or signing one. 

It is also important to keep track of changing law, such as the litigation surrounding the Federal Trade Commission’s non-compete ban. While the FTC’s new rule is not currently enforceable, the ongoing litigation surrounding this rule may affect the enforceability of non-compete agreements in the future. 

At BB&C, we handle both sides of non-competes. Whether you’re a business owner or an employee, we have the expertise to tackle your unique challenges. Contact us to see how our experienced non-compete lawyers can help.

Disclaimer: The content of this blog is intended to be general and informational in nature. It is advertising material and is not intended to be, nor is it, legal advice to or for any particular person, case, or circumstance. Each situation is different, and you should consult an attorney if you have any questions about your situation.