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Thinking of Imposing a Nationwide Non-Compete on Individuals Who Never Had Any Personal Contact With Your Clients? One Indiana Court Says Think Again.

Written by Gauri Punjabi

In today’s increasingly competitive world, employers understandably have a need to protect their business interests by requiring employees to enter into non-competition agreements that restrict their employees’ ability to engage in anti-competitive practices after their employment ends. While many courts recognize this practice, they will not endorse just any type of non-competition agreements. A recent decision from an appeals court in Indiana confirms as much, and in this case it noted that enforceable agreements must: (1) protect more than just general skills learned by an individual while on the job, and (2) place reasonable restrictions on the scope of activity or geographic area sought to be protected.

In Buffkin v. Glacier Group, Glacier Group, a headhunter in the IT industry, engaged Buffkin as an independent contractor to recruit sales representatives and sales engineers to fill open positions at Glacier’s clients. Glacier never provided Buffkin with its client list, nor did it permit Buffkin to communicate with its clients. Rather, Glacier merely provided Buffkin with descriptions of the job openings and then Buffkin would identify candidates to fill those positions. Occasionally, Glacier would reveal the name of the client; other times, he would guess the client’s name. After the engagement ended, Glacier learned that Buffkin was working as a recruiter for other company in the IT field, leading Glacier to seek enforcement of Buffkin’s non-competition agreement, which prohibited him from being “connected in any way with any business that competes with [Glacier] in employee recruitment or performance placement with employers with offices in the continental United States.”

Glacier sued Buffkin alleging that he was in breach of the non-competition agreement and sought a preliminary injunction preventing Buffkin from competing with Glacier. The trial court, in enforcing the agreement, readily accepted that Glacier had a protectable business interest in the names, e-mail addresses and preferences of Glacier customers with respect to prospects and candidates for job positions. The appeals court however, disagreed and found that Glacier’s protectable interest was minimal because: (1) even though Buffkin knew the names of some Glacier clients, Buffkin had not had any personal contact with Glacier’s clients (which the court noted would ordinarily have constituted a legitimate protectable interest); and (2) the general training Buffkin had received on recruiting techniques and information relating to specific recruiting assignments did not constitute proprietary information requiring protection.

Next, the Court found that, even if Glacier had viable business interest to protect, the scope of the non-competition agreement, under the circumstances here, was entirely overbroad, as it prohibited Buffkin from working in the recruitment and placement services field anywhere in the United States even though Glacier wanted to, but did not, conduct business throughout the country. The court noted that “an employer does not necessarily currently possess a legitimate protectable interest in each region in a geographic area (such as the continental United States) or each relevant market for its products or services by mere virtue of the fact that the employer may wish or has a vision to expand its business into every such region or relevant market.”  The court also found Glacier's restriction against working in any capacity for or with any business that competes with Glacier in employee recruitment or placement was overbroad because it: (i) could conceivably capture every company in the US; (ii) prevented Buffkin from providing recruitment and placement services outside of the IT industry or even non-recruitment and placement-related services to that company; and (iii) did not distinguish between Glacier's past, current and former customers.

Thus, while (most) courts recognize the need to protect an employer’s legitimate business interests, they will not uphold blanket restrictions on an employee’s mobility in protecting that interest. This is hardly controversial in most jurisdictions and employers shouldn’t think otherwise. And this analysis applies whether the individual is an independent contractor, as was the case here, or whether an individual is an employee. As Buffkin teaches us, employers in Indiana, and in many other jurisdictions, are well-advised to consider drafting their non-compete agreements narrowly, including by, among other things, (i) articulating the specific business interest it seeks to protect; and (ii) limiting prohibitions to certain well-defined geographic areas, particular activities and/or specific customers or clients as necessary. On that last point, consider limiting the prohibition to past or current customers or clients with whom the employee or independent contractor had contact or possessed business information about, or prospective customers or clients that you were actively engaging when your relationship with the employee or independent contractor ended. Of course, given that the enforceability of non-compete agreements is jurisdiction-specific, we also recommend consulting outside counsel to help you craft appropriately tailored non-competition agreements that are right for you.

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