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The tide turns against noncompete agreements

On Behalf of | Jan 10, 2023 | Business Law

Employers invest a lot of time and money in training their employees, and it can be frustrating to see a worker quit and take their new skills to a competitor. With that in mind, many employers have asked their new employees to sign agreements that limit their ability to work for competitors within a certain period after leaving the company. Some of these come in the form of separate agreements and others appear as clauses within employment contracts.

These noncompete agreements, as they are commonly known, are highly controversial. For years, workers have been fighting against them because they limit their career options.

Many courts and state legislatures agree with these workers. An increasing number of states have limited the power and reach of noncompete agreements, arguing that they present unfair restrictions on workers’ personal freedom to choose the job they want. Ten states have passed laws prohibiting noncompete agreements except for those involving highly paid employees.

At the prompting of President Biden, the Federal Trade Commission recently proposed a nationwide ban on noncompete agreements. The agency stated that these agreements reduce workers’ freedoms, suppress wages and deprive other businesses of a pool of talented potential employees. The proposal is currently open to public comment.

Noncompete agreements in Indiana

Still, these agreements remain common. According to the U.S. Treasury Department, as many as 20% of American workers are bound by some form of noncompete agreement.

Indiana does not have a statute that specifically prohibits or limits noncompete agreements. Instead, courts interpret the agreements on a case-by-case basis.

When examining a noncompete agreement, Indiana courts will generally base their decisions on the basis of reasonability. If they find that the restriction does not seem overly harsh and that the employer has a legitimate business reason for it, the court will likely find that the agreement is legally enforceable.

Non-disclosure agreements

One common argument against noncompete agreements centers on trade secrets. As the argument goes, employers need noncompete agreements so that their employees don’t take confidential information with them when they switch over to working for a competitor. This could mean the original employer loses an important advantage in the marketplace.

There is another way around this problem: A non-disclosure agreement. Rather than limiting an employee’s right to switch jobs, a non-disclosure agreement simply limits an employee’s ability to disclose confidential information it learned through their employment.

For example, a non-disclosure agreement might limit a Coca-Cola Company employee’s ability to disclose the soft drink’s secret recipe after they quit and begin working for Pepsi.

Learn more

It’s too early to tell whether the FTC’s proposed rule will go into effect, or what it will do if it does. However, it seems that noncompete agreements are falling out of favor with the law.

Attorneys can help employers understand their options for protecting their trade secrets, their investments and their bottom lines.