In today’s ultracompetitive economy, companies take significant measures to protect their assets and maintain their competitive edges. A company’s most valuable
assets often include confidential (and maybe
trade secret) information and its established
relationships with its customers. When an
employee leaves a company, will that
employee be allowed to use the company’s
confidential information or contact the company’s customers on behalf of another company? It depends, says Blake J. Burgan, partner for Taft Stettinius & Hollister LLP.
“If the employee did not sign a nondisclo-sure agreement, it would be difficult to prevent him or her from using any confidential
information unless the company could establish that the information was a trade secret,”
Burgan says. “In addition, without a noncom-pete agreement, that same employee would
be able to compete for and even steal the
very customers the employee dealt with
while working for the former employer.”
To avoid this companies should consider
entering into noncompete and nondisclosure
agreements with their employees.
Smart Business spoke with Burgan about
noncompete and nondisclosure agreements
and how they help protect company assets.
What exactly are noncompete and nondisclo-sure agreements?
Noncompete and nondisclosure agreements are two of the most powerful tools
employers can use. While the law regarding
noncompetes is ever-changing, a properly
drafted agreement allows a company to protect its assets by restricting a former employee from competing with it for a certain period of time in a particular geographic territory
or from soliciting certain customers or
clients of the company. Generally, a nondis-closure agreement — sometimes referred to
as a confidentiality agreement — prohibits
an employee’s use and disclosure of the company’s confidential information following termination of employment. While noncompete
agreements must have durational limits,
courts — at least in Indiana — have not
required such limits on nondisclosure agreements. In other words, a company can prohibit a former employee from ever using or
disclosing its confidential information.
What are companies entitled to protect with
a noncompete?
A company cannot prevent an employee
from using the general knowledge or skills
gained during the course of employment.
Instead, a company must have what is called
a ‘protectible interest’ to support a noncom-pete. The two most common protectible
interests recognized under Indiana law are
customer relationships and confidential
information/trade secrets. Companies routinely pay employees significant amounts of
money to cultivate and maintain customer
relationships, and those relationships are
extremely valuable assets. With a noncom-pete, a company can prevent an employee
from exploiting those relationships for a period of time after termination of employment.
A company can also protect from disclosure
competitively sensitive information, including trade secret information, to which an
employee may have had access.
Who should sign noncompete and nondisclo-sure agreements?
Generally, companies should not require all
employees to sign noncompete agreements.
Instead, they should consider entering into
such agreements with management-level
employees, employees with significant contact with customers and employees with significant access to confidential information.
Even if a company does not utilize a non-compete agreement, it should at least have all
employees with access to confidential information sign nondisclosure agreements. A
properly drafted nondisclosure agreement
may provide a company with even more protection for its information than is available
under the Uniform Trade Secrets Act.
If a company doesn’t have noncompete
agreements in place, is it too late?
No. While it is generally preferable to have
employees sign such agreements at the
inception of employment, companies in
Indiana can require even current employees
to sign such agreements. The reason is that
continued employment is generally sufficient
consideration to support a noncompete
agreement.
Are noncompete agreements really enforceable in Indiana?
Yes. One of the most common misperceptions is that noncompetes are not worth
writing because courts will not enforce
them. That simply is not true. Reasonably
drawn noncompete agreements are routinely enforced in Indiana, both in and out of
court. The key to enforceability is reasonableness in terms of duration, geographic
scope or customer restriction, and the
scope of conduct prohibited. Companies
should consult their legal counsel to review
their current agreements or to draft new
agreements in light of current Indiana law. A
company often takes significant measures
to protect its confidential information and
customer relationships, and if it has not
already done so, it should include noncom-pete agreements and nondisclosure agreements to help bolster that protection.
BLAKE J. BURGAN is a partner with Taft Stettinius & Hollister LLP and concentrates on employment law and litigation for business
and governmental clients. Reach him at (317) 713-3596 or [email protected].
