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,
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Riley Bennett Egloff LLP - April 2018