This is the second installment of a web series on non-compete agreements and restrictive covenants.
As discussed in Part 1 of this series, employers frequently to a “why bother?” approach while operating under the mistaken belief that restrictive covenants are not enforceable. Thus, employers may erroneously waste the resources expended in preparing and binding employees to non-compete agreements, and more importantly, unnecessarily leave the company vulnerable to wrongful competition by former employees holding valuable customer information.
Who is Subject to Enforcement?
- It is a common misconception that a company cannot enforce a non-compete against an employee who was fired. Though the law remains somewhat unsettled in Indiana, the weight of court authority would seem to find that enforcement against a terminated employee is possible, particularly where the company terminates an employee for substandard performance or similar justifiable business reasons, and does not act in bad faith.
- Another common rumor surrounding non-competes is that the company did not attempt to seek enforcement against Former Employees X and Y, and therefore will be precluded enforcing against Former Employee Z. This “selective enforcement” argument unfortunately remains unsettled as well, particularly in Indiana. Nevertheless, a court considering a “selective enforcement” argument should be expected to weigh the equities of the particular situation and look to whether a company’s failure to seek enforcement rises against other former employees rises to the level of the company acquiescing to restricted conduct by former employees. It is quite unlikely that an Indiana court would adopt the categorical position that a company cannot seek enforcement against one former employee merely because it did not pursue others who were subject to the same or a similar restrictive covenant. After all, such a rule encouraging widespread enforcement by employers would run counter to the disfavor that non-compete agreements are generally shown by courts.
- Indiana courts have not distinguished between employees and independent contractors when examining the enforcement of non-compete agreements – in other words, a person working for or with a company may be subject to a restrictive covenant regardless of that person’s employment status.
- Third parties may be restricted by a non-compete agreement signed by a former employee. This most frequently arises when a company seeks to enforce a non-compete against a former employee and his or her new employer. There are various legal claims which may be brought against the new employer – including tort claims for interfering with the non-compete contract between former employee and former employer. But even the restrictions of the actual non-compete agreement itself can be extended to the new employer particularly in situations where the new employer aided the former employee in breaching the non-compete agreement or where the new employer may be owned, operated, or controlled in any way by the former employee.
ROBERTS MEANS, LLC: Cost Effective Litigation Experts
ROBERTS MEANS, LLC is an Indianapolis boutique law firm representing businesses and employees in various business litigation matters of drafting, negotiating, enforcing and litigating non-compete agreements and restrictive covenants. We offer cost-effective and responsive legal services for clients ranging from individuals and business owners, to local small and mid-sized businesses, to national companies.
For additional information concerning non-compete agreements, please feel free to call ROBERTS MEANS, LLC at (317) 353-3600 or contact us via email if you have any questions.