Non-compete agreements; The Basics, Unenforceable Provisions, and the Uncertain Future

A non-compete agreement is a legal agreement or clause in a contract which states that an employee must not enter into competition with an employer over a certain period of time. In addition, the agreement usually contains a clause prohibiting the employee from revealing proprietary information or secrets to any other parties during or after employment. Usually, the agreement will also contain a certain length of time that the employee is barred from working for a competitor after employment with their current employer.

Under Indiana law, the enforceability of a non-compete agreement depends on the reasonableness of the agreement’s terms. Below is a list of factors that would make a non-compete agreement unenforceable:

• When the non-compete agreement is not necessary for protecting the business interest of the company
• When the agreement has unreasonable time restrictions (the time restrictions usually hover around 6 months – 2 years)
• When the agreement is unreasonable in scope, particularly by prohibiting professional activity outside the geographic area in which the company conducts business
• When the employee hasn’t been offered anything in return for signing the agreement.

Indiana, similar to many other states, generally does not look favorably on non-compete agreements or provisions. If an employer violates a non-compete agreement, an employer is able to take legal action against the employee. Usually, the employer will pursue an injunction, meaning that the employee, if found to have violated the agreement, would be forced to leave their new employer and continue to follow the terms of the agreement.

With all of this said, there is a chance that non-compete agreements will become a thing of the past before we know it. Recently, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from imposing non-competes on their employers. The FTC states that non-competes are widespread and often involve exploitative practices that suppress wages, hamper innovation, and block entrepreneurs from starting new businesses. The FTC also claims that if non-competes were banned, wages would gradually increase by nearly $300 billion per year and expand career opportunities for about 30 million Americans, if not more. Although nothing is set in stone, it is important to keep an eye out as this proposal is reviewed.

McNeelyLaw has a team of attorneys waiting to assist you with your employment law needs. Please contact McNeelyLaw if any employment issues, including issues involving non-compete agreements, arise.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.