In this article, we discuss Indiana non-compete agreements and answer the following questions:
In an effort to protect their proprietary information and to keep good employees from being pilfered, Indiana employers are increasingly requiring their employees to sign non-compete agreements. The non-compete agreement gives employers some measure of security that an employee who has developed considerable skill and gained valuable insight during his or her employment won’t leave and begin competing directly with the company. However, many non-compete agreements are harsh and overly board, significantly stifling an individual’s ability to move freely through their profession and pursue potential career opportunities. As a result, such agreements are regularly contested in court. But, how do we determine if a non-compete is infringing on our employment rights in the first place?
Indiana uses common law, which is a malleable system of reasoning developed by judges, based on the rulings of cases over the years. What this means is that if case X has similarities to many non-compete cases in the past, then the judge’s ruling will likely follow the conclusion of those previous cases. This is not to say that a plaintiff or defendant doesn’t have any agency in the judge’s decision. Both sides still have the right to present arguments and evidence, however many cases are settled before they get the chance to move into the courtroom.
Ultimately, the judge presiding over the case will decide if the non-compete in question is reasonable. He or she considers a handful of factors when making this decision, such as:
As mentioned above, since common law governs non-compete disputes, there are no hard and fast rules for any of these factors. However, geographic and duration restrictions tend to be similar within a given profession and location. For example, a dentist’s office in a rural town might have a new dentist sign a non-compete that includes a 5-year, 20-mile radius clause, effectively banning that new dentist from leaving and starting his or her own practice in the same town; versus an agreement for an office in a major metropolitan area that lists one-half mile and three years.
When considering more opaque or subjective factors such as the potential short and long-term effect on the employee and the public’s or employer’s interests the judge’s decision will ultimately come down to a combination of past rulings and how well each side presents its argument. If an employee goes to another company within the same field but has a role that is completely different, such as a salesman moving into an engineer position, this creates a grey area where the employee has information about the past company, but won’t be using the skillset gained at the previous company
Furthermore, the agreement can’t go against established public policy, such as creating a monopoly over a workforce, keeping an employee from leaving a job, or be illegal in any way.
The biggest factors influencing duration and geographic scope in Indiana non-compete agreements are 1) The current and potential operational area of a company, and 2) the degree of specialization and knowledge required by the role.
Geographic area: The geographic area of a non-compete agreement must be appropriate for the area the company operates in to be enforceable. A good rule of thumb is that restriction extends to the immediate area the company normally does business, and possibly beyond if the company is in the process of expanding. This can become complicated for businesses that operate throughout the country or overseas and for employees that regularly travel. In the end, the courts must weigh the legitimate interests of the company against the potential hardship of the employee.
Duration: Durations of three to five years are common amongst non-compete agreements. However, the more specialized the role and specific the knowledge, the longer a non-compete agreement may be enforceable. If an employee has intricate knowledge of a tech company’s processes, that information could significantly damage the company’s competitive advantage. This scenario is also crossing over into intellectual property rights violations.
Any employer can require a new employee to sign a non-compete agreement as a stipulation of employment. The employee has the right to negotiate the terms of the agreement, but in the end, the employer can deny employment if the new hire declines to sign. Existing employees cannot be “forced” to sign a non-compete unless there is consideration, offer, and acceptance. This also occurs for a new employee, but it is implied in the new-hire agreement. In both situations, the new, or existing, employee and the employer both get something in the exchange. An existing employee will usually be given a promotion, new position, more money, etc. and in exchange, the company will require the non-compete or an updated version of the existing non-compete.
In a dispute over an Indiana non-compete agreement, it falls on the employer to prove that a clear violation of its non-compete agreement has occurred. While it may seem like there are a lot of opportunities for the employee to win in an non-compete case, in general, the courts will uphold a reasonable contract, mostly because the employee in signing the contract, legally agreed to the terms.
The company can seek remedies in the form of restitution for actual loss of profit or damages to the company’s value, liquidated damages, or injunctions against the former employee and his or her new company.
If a former employee has violated his or her non-compete agreement, or you feel your company is holding you to an unreasonable agreement, contacting a business attorney is the first step in getting the dispute resolved.
O'Flaherty Law is happy to meet with you by phone or at our office locations in: