These days, a lot of businesses are asking employees, especially those in positions that hold proprietary information, such as sales, technology, and product development, to sign non-compete agreements. But what is a non-compete agreement, and is it enforceable?
A non-compete agreement is a contract between two persons or business entities (a company and employee or a person selling/buying a business). The contract essentially says that the employee, or seller of a business, will not open up another business, work for a competitor, or compete in the same business market place for a period of time. This agreement is to protect employers usually from employees taking trade secrets, customer lists, or other skills and knowledge learned from the employment with the employer to a competitor and capitalizing on that knowledge. A non-compete can be signed either at the beginning or end of the employment. Generally, non-compete agreements are limited geographically and by time. A typical term would be within 20 miles for 6 months, etc.
With non-compete agreements becoming commonplace in many business and office settings, as an agreement between an employer and employee as a condition of employment or termination, there are many fallacies associated with what a non-compete agreement is, when it should be used, and when it is or is not enforceable. The first myth may be that a non-compete agreement is not worth the paper it is printed on. This is not true and likely comes from a long line of cases striking down the agreement as unenforceable, because the agreement at issue was overly broad. These past cases have helped to refine when and how to properly use a non-compete agreement so that it is enforceable.
A non-compete agreement cannot be used to restrict an employee from working in a similar field generally, meaning it can’t prevent them from having a job elsewhere. A non-compete agreement that restricts employment with a competitor anywhere, and for an exceptionally long time or no time limit term is provided, would not be enforceable. There must also be a protectable interest, such as trade secrets, customer lists, special training, special techniques, etc.
In Indiana, a court will consider each case involving the enforcement / contesting of a non-compete agreement on a case by case basis. Meaning, there is not black line rule for drafting a non-compete agreement, nor will a generic agreement be appropriate for each and every employee. Thus, it is important to consider drafting an agreement for each particular employee that is tailored to his or her skill set, knowledge base, and position. Non-compete agreements should be narrowly tailored in scope and application to ensure the most likely outcome that a court finds the contract enforceable. A properly drafted a non-compete, agreement is invaluable to protecting your company’s most valued assets.
We hope that you have found this information to be helpful in what a non-compete agreement is and how it can be a useful tool in protecting your business. This is not intended to be legal advice. If you have questions or concerns about your specific case, CIYOU & DIXON, P.C. can help evaluate your specific case. This blog post was written by Attorney, Lori B. Schmeltzer.