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Show Me a Good Non-Compete Drafter, And I'll Show You a Diamond Cutter

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INDIANAPOLIS -

Year after year, the follies continue. Employer misfires just keep coming, whether it is overreach on employee non-compete agreements or failure to implement the right document; the most recent decisions show the circus continues.

In one recent case, the employer chose not to use non-compete agreements at all, but instead relied on mere confidentiality agreements. When a group of employees left, and guess what, competed, the employer tried to use the confidentiality agreements to preclude the competition. Two bad results: (1) the evidence showed the employer let employees take confidential documents home and otherwise treat the material as non-confidential, which resulted in no enforcement of the confidentiality provision; and (2) the court also ruled confidentiality agreements offer no substitute for non-competition agreements, which means the competition could not be enjoined.

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In another case in the context of a business sale, which permits very broad non-competes, the key language defining competition was “blending, packaging, and selling” the products in question. When the plaintiff sued, the court ruled that because “and” was used instead of “or” the plaintiff had to prove all the listed conduct occurred before a violation occurred. The business couldn’t do so and lost the case.

In the employment context, a non-compete promised enforcement could be extended during any period of non-compliance. Fair enough. However, the employer sought to enforce the extension through a mere preliminary injunction. Not so fast, said the courts. Preliminary injunctions only maintain the status quo. For an extension of the non-compete, the employer needed to allow for a permanent injunction.

Sometimes employers lucked out and obtained enforcement despite overbroad language the court felt compelled to delete under Indiana’s “blue pencil rule.” In this case, the employer used this language in its non-compete: “in the event of termination of this Agreement, [Employee was] not to divulge [Company business information of any kind] to any existing or prospective competitor of the Company and not to act in any way as a competitor of the Company in the territory granted unto him for a period of two years after the termination of his employment.” This employer dodged a bullet because other restrictions in the employment agreement protected confidential information and customers for a two-year period. If all this employer had was the above-stated language in the non-compete, it would have been left holding an empty bag, e.g. a non-compete that could not be enforced.

What does this mean for the average employer? Don't take chances with your company's most important assets: trade secrets, confidential information, and customer relationships. Using cookie-cutter documents or templates won't get it done. Make sure a legal practitioner skilled in the ways of non-competes, a diamond-cutter, sits at your drafting table.

For more information, contact David Carr or another member of our Labor, Employment and Immigration Team.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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