Riley Bennett Egloff Magazine April 2018 | Page 6

It’s Never Too Late…(to review your restrictive employment agreements) By: Donald S. Smith N ow is always a great time to consider entering into restrictive employment agreements with key Elements of Agreements employees to protect your company’s business and goodwill. If you already have such agreements, but The first determination needs to be whether the they have not been reviewed recently, it is a good idea employment will be at-will or the employment will be to have them reviewed now. for a specific duration. For the most part, the courts do not seem to be concerned with the length of the When litigating restrictive agreements, the side opposed employment when it comes to enforcing the restrictive to the agreement will always point out that “courts do covenants. not favor restrictive agreements because they constitute a restraint of trade.” As a result, courts continue to Most of the litigation seems to concern non-compete revise what they believe is reasonable to enforce. In agreements, a specific type of restrictive covenant. particular, the courts will look at the employer’s The courts continue to look at three main topics to legitimate business interest in seeking enforcement determine whether the agreement is reasonable. Those and will weigh that against an employee’s right to seek are: 1) time; 2) area; and 3) activities. First, with regard employment in a free market economy. A restrictive to time, it is generally accepted that an agreement that agreement that may have been acceptable to a court five lasts no more than two years after the employment years ago may be rejected by a more modern court as relationship is terminated is reasonable. Although being too restrictive. a longer period may be considered if the former employee is a principal of the company and is agreeing The rules may be slightly different depending on the to stay out of that line of business when the company state of employment and your particular state’s court is sold, for a non-owner employee, two years seems to decisions may need to be examined to ensure your be the maximum amount of time. Nevertheless, if the restrictive covenants are in line with current decisions. company’s business is highly competitive such that its This article will focus primarily on Indiana cases. customer base or goodwill does not extend beyond a year, courts will scrutinize (and perhaps not enforce) a two-year restriction in such circumstance. Second, 6 Riley Bennett Egloff LLP - April 2018