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BizVoice/Indiana Chamber – May/June 2016

Yet despite the enormous investment in developing

these critical assets, many companies fail to take the

appropriate steps to ensure they are adequately protected.

Losing a senior manager, sales representative or other

key employee often means the loss of a significant

personnel investment. That loss is compounded when

the former employee uses your information to compete

with you and then steals your customers.

The law provides a measure of protection to all

businesses against post-employment competition, but in

most instances it is not enough. Trade secret laws

protect against the theft of certain highly confidential

and valuable information. Many types of proprietary

business information, however, do not constitute trade

secrets and are not protected.

Similarly, the law protects against the theft or conversion

of property, which can include business records and

documents, but the remedies available to employers

when an employee takes such items are rarely sufficient

to ensure the information will not be used

competitively against you. In general, if an employee

quits or gets fired, he or she is free to stay in the

industry, work for (or start) a direct competitor and

actively solicit your customers.

But there is something you can do to dramatically

increase the protection of these critical business assets:

Require your employees to sign a carefully drafted

restrictive covenant agreement, commonly referred to

as a “non-compete.” A common misperception is that

“non-competes aren’t worth the paper they’re written

on.” It is true that the law favors free market

competition and disfavors restrictions on an individual’s

right to earn a livelihood, so it can be difficult to

enforce post-employment restrictive covenants.

These types of agreements, though, are valid in

most states if they are narrowly tailored to protect the

employer’s legitimate business interests (such as

confidential information, customer relationships and

business goodwill) and they are not more restrictive

than necessary to protect those interests. While an

overbroad covenant may be completely unenforceable

(or subject to substantial reduction by the court), a

properly written covenant can provide significant

protection against post-employment competition.

Restrictive covenant agreements generally include

three types of restrictions:

• A confidentiality/non-disclosure provision is designed

to protect an employer’s confidential business

information – such as customer information, financial

data, strategic information and proprietary methods

– from unauthorized use or disclosure by the

employee. These types of agreements extend far beyond

state trade secret laws because they can more broadly

define the types of proprietary information that are

protected, and because they can include remedies for

breach that are more beneficial than what is available

by statute. These provisions also typically require the

employee to return all company property and data

upon termination of employment, adding a significant

additional measure of contractual protection.

• A non-competition covenant (the traditional “non-

compete”) prevents a former employer from engaging

in certain types of competitive activities in a defined

geographic area over a specified period of time

(usually from six months to two years). Courts tend

to disfavor these types of covenants because they may

effectively prevent the employee from working in the

industry where he or she has earned a livelihood.

Even so, if narrowly crafted and limited by activity,

geography and time, courts in most jurisdictions

(with California being a notable exception) will

enforce these types of covenants against key

management and sales personnel.

• A non-solicitation covenant prohibits a former

employee from soliciting or servicing the employer’s

customers for a defined period of time (again, usually

six months to two years). Courts tend to be more

inclined to enforce these types of covenants because

they recognize the significant investment that

companies make in their customer relationships.

Although geographic non-competes are designed to

prevent a former employee from competition

generally, non-solicitation covenants more narrowly

protect key customer relationships. This type of

covenant is critically important, especially for key

management and sales personnel who interact

regularly with customers. Non-solicitation covenants

can also prohibit a former employee from recruiting

your employees, which can be a significant deterrent

when a key employee leaves and then tries to entice

his or her former co-workers away.

To develop enforceable restrictive covenant agreements,

employers must take into account two very important

considerations. First, each covenant must be meticulously

drafted to protect the specific interests of that particular

business and to limit the activity restrictions based upon

the individual employee (or classification of employee)

for whom the covenant is designed. Generic, form non-

competes are most likely not enforceable. Each agreement

must be thoughtfully developed for your business.

Second, state laws vary greatly in this area. Some


A Good Tool to Help Protect Your Business


Greg Guevara

is a partner in the Labor

and Employment Group at

Bose McKinney & Evans

LLP, representing national,

regional and local

businesses in labor and

employment matters and

litigation. He can be contacted

at (317) 223-0257 or


Greg Guevara

Two of your company’s most valuable assets are your customer relationships and your

confidential information. Developing strong relationships with your customers is what drives

your revenue, and protecting the confidentiality of your business information is what helps

maintain your competitive advantage.

Continued on page 77