I see a lot of non-competition and non-solicitation agreements in my work. These are agreements that try to protect companies from “unfair” competition from their current and former employees. They serve a legitimate interest - it might be pretty unfair for a salesperson to be able to switch companies and take all of the customer relationships that she’s cultivated at one company and use that goodwill to immediately divert those customers to a direct competitor.
Employers generally get to “own” and enjoy the “goodwill” that their employees generate for their customers. Employees might feel like that goodwill belongs to the employee, but that is generally not considered to be the case. Yeah, you put in the hard work, but you were paid to do it.
So the law generally recognizes that sometimes employers have legitimate business interests that need and deserve protection from unfair competition. Courts allow non-competition and non-solicitation agreements (agreements not to go after certain customers). What Courts shouldn’t (and often don’t) allow is an agreement that reaches far beyond the scope of the protection that’s necessary to protect that “legitimate business interest.”
Here’s a classic example - high level sales executive signs on at a company and as part of “the deal” he signs a non-competition agreement, forbidding him from working at any competitor in any capacity. This is super broad language that is easy to write - just don’t go do anything for any competitor.
But non-competition and non-solicitation agreements are “covenants in restraint of trade” - a legal term that is talking about anti-competitive activity. We generally don’t like anti-competitive activity. There are a whole mess of anti-trust laws that prevent big monopolies from gobbling up all of their competition and becoming monoliths (see, e.g., Microsoft in the 1990’s). Since we want competition in our economy, we tend not to like anti-competitive agreements, and they are “disfavored” by the law.
The long and short of this is that non-competition and non-solicitation agreements should be narrowly tailored (a legal term meaning designed to be a tight fit) to protect only the things that are necessary to safeguard the employers legitimate business interests.
Going back to our classic sales exec - is there anything that would make it unfair for the sales exec to go work for a competitor as a janitor? No, of course not. The goodwill that the sales exec developed for his old employer isn’t going to follow him and be unfairly exploited by his mopping, dusting, and restocking paper towels in the bathroom. What if the sales exec is going to go work in Human Resources at a new company - how is it unfair to help employees sign up for 401k matching or health care insurance at the new company? It’s not.
So your old “one-size-fits-all” non-competition agreement that prohibits employees from going to work for any competitor in any capacity probably isn’t enforceable. There is a growing trend (though not yet full-grown) that suggests that employers who reach too far with these agreements (taking more than they need) end up getting nothing. Want an example? Check this opinion here: https://caselaw.findlaw.com/in-court-of-appeals/1658360.html .
What do we do now?!
Before you sign a non-competition or non-solicitation agreement, it’s a good idea to talk with a lawyer. Why?
When an employer hands an employee an employment agreement with a covenant not to compete, the employee is of course entitled to consult a lawyer before signing the agreement. If the employer has drafted an unreasonably broad covenant, the employee should be entitled to rely on sound advice that the covenant is simply not enforceable under Indiana law. That employee's intent may well have been not to agree to any enforceable restriction. That same employee could sign quite happily a covenant, knowing that the courts would shred it.
Clark's Sales & Serv., Inc. v. Smith, 4 N.E.3d 772, 786 (Ind. Ct. App. 2014).
Before you ask an employee to sign on to a non-competition or non-solicitation agreement, you should have it narrowly tailored by a lawyer. Why? Same reason as above! You don’t want a court to shred it.
If your business is important enough to protect with a non-competition or non-solicitation agreement, it’s important enough to hire a lawyer to tailor the agreement to make sure it’s a good fit. It’s worth the modest expense to make sure that it’s as enforceable as possible.
Remember the old adage that “an ounce of prevention is worth a pound of cure?”