An Indiana appellate court docket lately declined to implement an govt’s non-compete on the grounds that the covenant’s exercise restriction was overbroad.
In Med-1 Options, LLC v. Taylor (Opinion 24A-PL-450, November 25, 2024), a bunch of medical charge assortment firms (“RevOne Corporations”) tried to implement a non-compete towards their former govt, the previous Chief Working Officer (the “Defendant”), after she resigned from her place. The trial court docket declined to implement the non-compete, discovering a restriction prohibiting her from working for a competitor in any capability to be overbroad and unenforceable. The RevOne Corporations appealed the choice to the Indiana appellate court docket.
On November 25, 2024, the appellate court docket affirmed the trial court docket resolution. The appellate court docket held that such broad actions restrictions are “unreasonable as a result of they lengthen past the scope of the employer’s professional pursuits.”
Whereas the appellate court docket didn’t invoke the oft-cited “janitor rule” by title, the choice is in step with the rule. The “janitor rule” offers {that a} court docket shouldn’t implement a broad non-compete prohibiting an worker’s means to work for a competitor in any capability. Courts using the “janitorial rule,” counsel {that a} non-compete ought to as a substitute include extra narrowly tailor-made prohibitions on post-employment work. As an illustration, a extra narrowly tailor-made restriction would prohibit an worker from working in a job that’s the identical as or just like that which the worker held with the previous employer or in a capability that will threat disclosure of the previous employer’s confidential data. In different phrases, if the non-compete is drafted so broadly that it might stop the previous worker from working for a competitor whilst a janitor, a court docket will deem the covenant unenforceable.
Some states allow courts to change or “blue-pencil” overly broad covenants to make them enforceable to the utmost extent permitted beneath relevant regulation. Some, like Indiana, allow courts restricted discretion to “blue-pencil” overly broad covenants. Indiana courts might delete unreasonable provisions which can be severable, however they can’t add provisions or in any other case modify the covenant. Ultimately, the Indiana court docket didn’t train its restricted discretion. With out citing the “janitor rule,” the Indiana appellate court docket’s affirmation of the district court docket’s discovering suggests the “janitor rule” is alive and effectively in Indiana.
As the brand new yr approaches, it’s an opportune time for employers to audit their employment paperwork, together with their restrictive covenant agreements, to make sure enforceability beneath relevant regulation. Employers who could also be contemplating getting into into new or amended restrictive covenant agreements with current staff (moderately than with solely new hires) should stay aware that sure states require unbiased consideration past continued employment when getting into right into a restrictive covenant settlement with a present worker.