What do the courts call an agreement preventing an employee from competing with a former employer?
The terms covenant not to compete, non compete agreements and non-competition agreements are synonymous. The agreement not to compete may be between a buyer and seller of a business or between employer and employee.
Is the non-compete agreement for an employee or for the seller of a business?
Indiana packs a difference of treatment in this distinction. Non-competition agreements covering employees came later to Indiana and are less favorably treated than those involving the sale of a business.
Does the employee's non compete agreement protect a legitimate business interest of the employer?
Protecting trade secrets is a legitimate business interest. For whether an Indiana business has a legitimate trade secret, see my articles here.
Indiana packs a difference of treatment in this distinction. Non-competition agreements covering employees came later to Indiana and are less favorably treated than those involving the sale of a business.
Does the employee's non compete agreement protect a legitimate business interest of the employer?
Protecting trade secrets is a legitimate business interest. For whether an Indiana business has a legitimate trade secret, see my articles here.
Protecting the business's goodwill is also a legitimate business interest.
If there is a legitimate business reason, then is the non compete agreement limited to the minimum time and area?
Indiana courts interpret covenants not to compete narrowly. The courts look at the reasonableness of the agreement. Pick the least amount of time needed to protect your trade secrets or business' goodwill. Pick the smallest geographical area covering the trade secrets or goodwill of the business. If the business did otherwise, then call a lawyer (and, yes, I would probably be available).
Even if protecting legitimate business interests and narrowly tailored to time and space, the non compete agreement may get struck as against public policy. Against what public policy? Against the policy of allowing Indiana's citizens to work where they want.
What is the Blue Pencil Doctrine?
Where the covenant not to compete has parts that can be upheld and other parts that cannot then the courts edit out (hence the blue pencil) the offensive parts. Where a covenant cannot be divided between the reasonable and unreasonable parts then the whole covenant is struck as bad.
Are Non-compete Agreements Worth the Paper They Are Written On?
While not trying to sound facetious, the quality of a non-compete agreement depends on how it is written. Buying a stock form from Office Depot will get you just as much as you invested in the agreement. I know one of my client was selective in suing over a non-compete agreement. The client had been in business for many years and knew which people would fail in their attempted competition. On the other hand, she sued whenever the person failed to make a clear distinction between her business and the new one.
When Should A Business Get an Employee to Sign a Non-Compete?
I say these scenarios require a non-compete agreement because not doing so imperils the business' ability to survive:
I have written other articles on non-compete agreements detailing more specific issues that you can reach by following this link.
What is the Blue Pencil Doctrine?
Where the covenant not to compete has parts that can be upheld and other parts that cannot then the courts edit out (hence the blue pencil) the offensive parts. Where a covenant cannot be divided between the reasonable and unreasonable parts then the whole covenant is struck as bad.
Are Non-compete Agreements Worth the Paper They Are Written On?
While not trying to sound facetious, the quality of a non-compete agreement depends on how it is written. Buying a stock form from Office Depot will get you just as much as you invested in the agreement. I know one of my client was selective in suing over a non-compete agreement. The client had been in business for many years and knew which people would fail in their attempted competition. On the other hand, she sued whenever the person failed to make a clear distinction between her business and the new one.
When Should A Business Get an Employee to Sign a Non-Compete?
I say these scenarios require a non-compete agreement because not doing so imperils the business' ability to survive:
- Whenever my client buys a business I want a non-compete for the former principals.
- Whenever the business has trade secrets and the employee has access to those trade secrets. For more about trade secrets, see my trade secret articles here.
- Whenever the employee's contacts with clients contributes to the business' goodwill.
I have written other articles on non-compete agreements detailing more specific issues that you can reach by following this link.
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