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Indiana non-competes must pass strict tests

Like a lot of working people, you have probably signed a non-compete agreement, although it could have had one of several different names such as “covenant not to compete.” The message is the same. You likely agreed not to take your talent, data, inside knowledge or relationships to another company that competes with your new employer.

Lately, these “non-competes” get negative press and, increasingly, negative court decisions. Indiana may be ahead of the trend since it has long had a tolerant but cool relationship with these contracts. And late last year, our state supreme court again sent a business away after declaring its non-compete unenforceable.

Indiana’s tough standards for non-competes

As in most states, Indiana courts hold non-competes to, above all else, standards of reasonableness. When a business asks a court to hold a former employee to an agreement they signed, the court usually considers two tests of reasonableness.

First, does the agreement seek to protect the company’s reasonable interests? The company might be able to, for example, stop an employee from taking the company’s lists of clients or its methods and formulas to the new employer. But simply stopping other businesses in their industry from hiring employees may not be a reasonable business interest.

Second, is the scope of the non-compete reasonable? It must be limited in place, time and type of activity. Forcing an employee out of their profession completely in a few surrounding counties for a year just might, possibly, be reasonable. But it is easy to imagine a non-complete prohibiting work in enormous stretches of time, vast ranges of industries and huge territories. People have to work, but mainly these kinds of restrictions typically do not protect a reasonable business interest.

State Supreme Court finds an agreement too broad

Early last December, the Indiana Supreme Court again dealt a blow to a business hoping to enforce a non-compete signed by a former employee.

Several technical questions were at stake, such as how much courts are allowed to edit agreements to make them acceptable. But the court also found a non-compete to be unacceptable because its scope was too broad.

A medical sales representative signed a non-compete agreement when he joined a medical products company. He then hired on at a second medical products company as a vice president, and then hired several employees of the first company. This violated their earlier agreement with the employee.

The state’s high court found, among other things, that the agreement was unenforceable. For one thing, it prohibited the employee from soliciting any employee doing any sort of work at any level at the first company. This presumably included office cleaning staff, truck drivers and the like. Its scope was too broad, the court said. All the company could do now was write better non-compete agreements in the future.