6
BizVoice/Indiana Chamber – May/June 2016
Yet despite the enormous investment in developing
these critical assets, many companies fail to take the
appropriate steps to ensure they are adequately protected.
Losing a senior manager, sales representative or other
key employee often means the loss of a significant
personnel investment. That loss is compounded when
the former employee uses your information to compete
with you and then steals your customers.
The law provides a measure of protection to all
businesses against post-employment competition, but in
most instances it is not enough. Trade secret laws
protect against the theft of certain highly confidential
and valuable information. Many types of proprietary
business information, however, do not constitute trade
secrets and are not protected.
Similarly, the law protects against the theft or conversion
of property, which can include business records and
documents, but the remedies available to employers
when an employee takes such items are rarely sufficient
to ensure the information will not be used
competitively against you. In general, if an employee
quits or gets fired, he or she is free to stay in the
industry, work for (or start) a direct competitor and
actively solicit your customers.
But there is something you can do to dramatically
increase the protection of these critical business assets:
Require your employees to sign a carefully drafted
restrictive covenant agreement, commonly referred to
as a “non-compete.” A common misperception is that
“non-competes aren’t worth the paper they’re written
on.” It is true that the law favors free market
competition and disfavors restrictions on an individual’s
right to earn a livelihood, so it can be difficult to
enforce post-employment restrictive covenants.
These types of agreements, though, are valid in
most states if they are narrowly tailored to protect the
employer’s legitimate business interests (such as
confidential information, customer relationships and
business goodwill) and they are not more restrictive
than necessary to protect those interests. While an
overbroad covenant may be completely unenforceable
(or subject to substantial reduction by the court), a
properly written covenant can provide significant
protection against post-employment competition.
Restrictive covenant agreements generally include
three types of restrictions:
• A confidentiality/non-disclosure provision is designed
to protect an employer’s confidential business
information – such as customer information, financial
data, strategic information and proprietary methods
– from unauthorized use or disclosure by the
employee. These types of agreements extend far beyond
state trade secret laws because they can more broadly
define the types of proprietary information that are
protected, and because they can include remedies for
breach that are more beneficial than what is available
by statute. These provisions also typically require the
employee to return all company property and data
upon termination of employment, adding a significant
additional measure of contractual protection.
• A non-competition covenant (the traditional “non-
compete”) prevents a former employer from engaging
in certain types of competitive activities in a defined
geographic area over a specified period of time
(usually from six months to two years). Courts tend
to disfavor these types of covenants because they may
effectively prevent the employee from working in the
industry where he or she has earned a livelihood.
Even so, if narrowly crafted and limited by activity,
geography and time, courts in most jurisdictions
(with California being a notable exception) will
enforce these types of covenants against key
management and sales personnel.
• A non-solicitation covenant prohibits a former
employee from soliciting or servicing the employer’s
customers for a defined period of time (again, usually
six months to two years). Courts tend to be more
inclined to enforce these types of covenants because
they recognize the significant investment that
companies make in their customer relationships.
Although geographic non-competes are designed to
prevent a former employee from competition
generally, non-solicitation covenants more narrowly
protect key customer relationships. This type of
covenant is critically important, especially for key
management and sales personnel who interact
regularly with customers. Non-solicitation covenants
can also prohibit a former employee from recruiting
your employees, which can be a significant deterrent
when a key employee leaves and then tries to entice
his or her former co-workers away.
To develop enforceable restrictive covenant agreements,
employers must take into account two very important
considerations. First, each covenant must be meticulously
drafted to protect the specific interests of that particular
business and to limit the activity restrictions based upon
the individual employee (or classification of employee)
for whom the covenant is designed. Generic, form non-
competes are most likely not enforceable. Each agreement
must be thoughtfully developed for your business.
Second, state laws vary greatly in this area. Some
NON-COMPETE AGREEMENTS
A Good Tool to Help Protect Your Business
AUTHOR:
Greg Guevara
is a partner in the Labor
and Employment Group at
Bose McKinney & Evans
LLP, representing national,
regional and local
businesses in labor and
employment matters and
litigation. He can be contacted
at (317) 223-0257 or
www.boselaw.comGUEST COLUMN
Greg Guevara
Two of your company’s most valuable assets are your customer relationships and your
confidential information. Developing strong relationships with your customers is what drives
your revenue, and protecting the confidentiality of your business information is what helps
maintain your competitive advantage.
Continued on page 77