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Noncompete agreements and trade secrets

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in Employment Law,Human Resources,Leaders & Managers,Management Training

Q. My company is involved in the biotech industry and regularly develops proprietary information. We currently are working with an executive search firm to find a replacement for a high-level marketing executive position. Management wants to manage the risk of disclosure of confidential information. How restrictive may the potential candidate’s noncompete agreement be, given the company’s special needs to protect trade secrets?

A. Noncompete agreements have received different shades of treatment from the Indiana courts through the years and continue to be an unsettled area of law. Despite these ambiguities, Indiana law is clear on a number of points.

Employers must be careful not to draft overbroad noncompete provisions. Indiana courts tend to weigh a number of factors when determining whether a noncompete agreement is enforceable.

First, courts will consider whether the company has a legitimate interest that justifies the noncompete clause. Given the nature of today’s information economy, employers rarely have trouble meeting this requirement.

Second, courts will examine the scope of the noncompete restriction. Specifically, the court will look at the language of the agreement to determine whether there are sufficient limitations concerning geographic proximity, time, the nature of relationships or parties involved and the subject matter of the agreement. Adequate limitations in these areas probably will depend on the nature of any confidential information, the individual company and the industries in which it competes. While courts do not require the noncompete to be restricted in all these areas, it must be sufficiently restricted in some manner.

Third, courts will consider whether the clause is consistent with public policy. This determination includes recognizing Indiana’s interest in maintaining free trade and allowing individuals the freedom to use their talents in the workplace. This will primarily turn on whether the clause’s restrictions recognize the interests of both the employee and the employer.

There is at least one case pending in the Indiana Supreme Court, which will hopefully clarify the acceptable parameters of a noncompete agreement even further.

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