Non-Competition Agreements
Non-Competition Agreements
It is not unusual for many employers to require their employees to sign non-competition agreements. Employers invest a substantial sum of money to develop a product or compile a client base, and these assets are extremely valuable. Companies want to be certain that employees who leave will not disclose confidential customer lists or trade secrets, or attempt to take away the employer's business.
Non-competition agreements must be reviewed carefully to determine whether they protect a legitimate business interest. Although a non-competition agreement is enforceable in Indiana, the agreement must be reasonable in length, geographic limitation, and scope. For example, a non-competition agreement that restricts an employee from working anywhere within a five mile radius of the employer's business would be more reasonable than an agreement which prohibits an employee from working anywhere in the state. A barber shop owner may have an interest in keeping one of his barbers from opening a shop across the street, but if the non-competition agreement prohibits the barber from cutting hair anywhere in the state of Indiana, the agreement would likely be too overbroad to be enforced. A barber shop may routinely serve customers within a five or ten mile radius, but the barber shop would have no legitimate business interest to protect by prohibiting one of its barbers from working in a barber shop 50 miles away.
A non-competition agreement must also be limited in time. If the agreement is for six months or a year, the time period may be considered reasonable. After six months or a year, most of the barber's former customers would have found other barbers at the shop to cut their hair. Extending the non-competition period to five years, however, would be unnecessary and punitive and would not be necessary to protect the company's business.
Where an employee has access to highly confidential customer lists or patented product information, the terms and conditions of a non-competition agreement may properly be more restrictive.
To be valid and enforceable, a non-compete agreement should be drafted to balance the legitimate business needs of the employer with the rights of an employee to practice his trade or profession.
Employees frequently sign employment agreements containing non-competition covenants or other restrictive covenants without paying much attention to the specific provisions. Employees are anxious to start their new job and the restrictions do not appear to have any immediate relevance. Yet, five years later, when the employee wants to change jobs, such restrictive covenants may compel him to leave the city or state where he has made his home. And if an employee decides to ignore the non-competition agreement, an employer may sue him and his new employer for significant monetary damages and injunction.
The lawyers at Maurer Rifkin & Hill can analyze a prospective non-compete agreement before you sign it, or analyze the enforceability of the covenant if it is already in force. A non-competition agreement can be declared invalid by a court of law if the agreement is overbroad.