Employee Non-Compete Agreements
Non-compete agreements have become commonplace today. Unfortunately, the misunderstanding of them is equally common. Employers may believe these agreements are worthless and therefore do not use them. Others may use them, but use a form document or draft the document themselves.
The truth is, non-compete agreements are difficult to enforce. The courts generally do not like any restraint on trade or an individual’s ability to earn a living. Nonetheless, a carefully drafted agreement can be a powerful tool to help employers protect their business.
Non-compete agreements are governed by state law. In Indiana, a valid non-compete must:
· Be given in exchange for some benefit at the time it was signed;
· Protect a legitimate business interest of the employer; and
· Must be reasonable in scope, geography and time.
The employee must receive something in exchange for their agreement. In most cases, requiring new employees to sign the agreement as a condition of their hiring is adequate. Also, the Indiana courts have held that keeping a current job is also adequate for enforcement. Many states differ on this interpretation so care must be taken to understand under what jurisdictions the agreement will be used. Due to this, many employers will give something additional to continued employment in return for the signed agreement. The amount of this additional consideration varies depending upon the situation.
An employer’s legitimate business interests usually include items such as customer lists and confidential information. The employer must demonstrate reasonable efforts to protect the information and that the information would give someone else an unfair advantage.
The scope, geography, and time rule is the most difficult to navigate. The court balances the needs of the employer with the burden on the employee. This standard will be different in each case. If the court finds that the document was intended to restrain fair trade, they can strike down the entire document.
The result of all this is that amateur attorneys should beware! This tool, if carefully drafted, can provide valuable protection for your business. If drafted sloppily or incorrectly, it can also end up costing an employer dearly.
