If you own a franchise or any other business that relies on proprietary or confidential information, you are likely using covenants not to compete (also referred to as noncompetition covenants or non-compete agreements) with your franchisees, licensees, employees and others. In Indiana, non-competes are generally enforceable as long as they meet certain standards.
Understanding Non-Compete Agreements
If you are not familiar with noncompetition covenants (or if you need a refresher), they are clauses in contracts that restrict one party from engaging in certain competitive activities against another. They typically apply during the term of the contractual relationship and extend for a specified period of time after the contract terminates or expires.
This “specified period of time” concept is important — the courts generally will not enforce a non-compete with an indefinite duration. This is because Indiana law requires covenants not to compete to be reasonable and necessary as to:
- Geographic coverage
- Nature and scope of prohibited activity
If a company is unable to demonstrate that its noncompetition covenants are reasonable and necessary in order to protect a legitimate business interest, it runs the risk of having its covenants invalidated in the event that they get challenged in court.
Protectable Interests With a Non-Compete
In Indiana, the courts recognize two primary categories of business interests as being sufficient to support a noncompetition covenant. These are (i) to protect trade secrets or other confidential information, and (ii) to protect customer goodwill.
So, for example, as a franchisor, you likely use non-competes to prevent franchisees from learning the ropes under your system and then competing against your brand in their former territory. In other situations, businesses may use non-competes to prevent their salespeople from poaching customers for a competitor. Or, they may use them to prevent suppliers from serving their customers directly. There are many valid reasons why businesses may choose to use covenants not to compete in Indiana, and while some parties attempt to negotiate for lesser restrictions, many see these covenants as a fair price to pay (as long as they are reasonable) for the privilege of doing business.
What Are Reasonable Restrictions for a Non-Compete?
This, in many ways, is the million-dollar question. You want to protect your business as much as possible, but you do not want to overreach and risk having a court invalidate your non-compete. There is certainly a careful balance to strike and different circumstances will generally call for different restrictions.
While the Indiana courts have provided some guidance, there is no clear, one-size-fits-all approach for drafting noncompetition covenants. As a result, whether you need to enforce an existing non-compete in court or wish to challenge a non-compete asserted against you, you will want to work with an experienced attorney to protect your interests as much as possible.
Contact Price Waicukauski Joven & Catlin, LLC Today
The Indianapolis commercial litigation attorneys at Price Waicukauski Joven & Catlin, LLC bring more than 100 years of experience to enforcing or attacking non-compete agreements in Indiana. To discuss your business’s legal needs, call our Indianapolis law offices at (800) 905-2856 or contact us online for a consultation.