Employment Law: The Dangers of Non-Compete Agreements

Unlike Virginia Non-Compete Law Blog, I represent both employees and employers in regards to non-compete agreements. I emphatically agree with my Virginia colleague on the following:

1. Do not sign a noncompete contract without first discussing with a knowledgeable attorney the impact the agreement can have on your and your family's future.

2. If you have already signed the agreement and are contemplating changing jobs to go with a potential competitor of your present employer, better have a chat with that same lawyer!

Read their post, The NonCompete Quandary, regardless of your location. Read the article on which is based, too.

For the Hoosiers reading the article, I would say there are some important differences in the law (which you can read more of by clicking the link below next to "Labels") which make no difference in connection with its themes: be careful of what you sign and do not sign without consulting a lawyer.

I would add one comment to employers, be careful where you get your non-compete agreements. I am seeing many downloaded from the Internet without editing for our local, Indiana law. Our law views non-compete agreements as a necessary evil that will be permitted only in narrow circumstances (which you can read more of by clicking the link below next to "Labels"). Used willy-nilly without concern to the facts of the situation only debases their proper uses.

Non-lawyer writing on non-compete agreements

Unlike some lawyers, I do not mind when non-lawyers write about legal matters - so long as they do not muff the law. No-Fault Divorce. Is It Time To Tie The Knot With A New Employee? from insurancenews.net does a good job with the legal issues. Besides, how can I object to an article that has the following paragraph:

To create a truly good agreement, start from the basics. It is worth the money to have an attorney involved in the drafting. But that is just the beginning. More important is that you, as the agency owner or manager, must guide the attorney to include the specific contractual elements you need.

I often wonder if my readers think my pronouncements about needing lawyers for a business are not a bit self-serving. Of course, they are self-serving to a point. I am looking for new clients, but I prefer to prevent problems for those clients to cleaning up the avoidable messes.

If you have a business then read all of the article. It applies to more than insurance agents.

Thoughts on Central Indiana Podiatry, Non-Competes, Garden Leave, and Physician Employment Contracts

Having finally posted on Central Indiana Podiatry v. Kenneth Krueger, I wanted to write on some points tangential to reporting on the particular case but which might I see bearing directly on physician employees. I think this case - and every similar case - may have been better served with a garden leave provision.

I have been working on a post on garden leave. For now let me use this definition from Wikipedia (it states with succinctness what I have read in more scholarly sources):

Garden leave (or gardening leave^[1]) describes the practice of instructing an employee who is leaving an employer (following a resignation, or having been made redundant or otherwise terminated) to stay away from work during their notice period. The practice is often used to prevent employees from working for the employer's competitors for a period of time.

Garden leave comes to us from the United Kingdom and has not yet made much of inroad into our law.

Why should such a concept work with physician employees?

1. In Central Indiana Podiatry, there was an employee contract.
2. Unlike salesmen contracts, there was a salary provision.

I suggest also reading my Noncompetition Agreements: Lexington Clinic sues former director and the case described there. I may overreach with my extrapolations regarding salaries and employment contracts but then my presumptions do not apply to those exceptions.

I see non-compete agreements where the employee is not working for a set term (therefore, no period for the garden leave to operate within) and/or is working on a commission basis (therefore, cannot establish an amount to be paid during the leave). Flipping around the problems, I say there is an opportunity with cases like Lexington Clinic and Central Indiana Podiatry.

I will speculate a bit further now about two other benefits I see garden leave having over a non-compete agreements.

First, I think a garden leave provision alleviates but probably does not remove the ethical concerns raised in Central Indiana Podiatry (and which have been raised elsewhere - see my post Non-compete Agreements - The Medical Field) about non-compete agreements.

Secondly, I cannot help but think that the costs of a gardening leave provision pale in comparison with the costs of a non-compete agreement. I see the costs of a gardening leave provision as being the cost of drafting the agreement plus the wages and benefits paid to the employee during the leave period. Compare that with the costs of a non-compete agreement in Central Indiana Podiatry: drafting the agreement, litigating the agreement, and losing because in Indiana non-compete agreements turn on the facts of each case. I expect the costs for litigating Central Indiana Podiatry exceeded $150,000.00 and would not be surprised if they reached even higher.

Downside? Using a tool new to Indiana is the first one coming to mind. That garden leave will not serve as a panacea for all cases.

As I see it, our law on non-competition agreements grew out of English law. Adopting garden leave from the English may be even easier - garden leave lacks the explicit harshness of restraining a person's trade.

As for being a panacea, nothing ever solves all of our problems. The true test for garden leave lies in whether this tool provides better benefits than non-competition agreements.

Central Indiana Podiatry v. Kenneth Krueger - The Indiana Supreme Court Speaks

Back on March 11, The Indiana Supreme Court handed down its opinion (PDF format) in Central Indiana Podiatry v. Kenneth Krueger. Justice Boehm started the opinion with a clear statement about the case:

We hold that noncompetition agreements between a physician and a medical practice group are not per Se void as against public policy and are enforceable to the extent they are reasonable. To be geographically reasonable, the agreement may restrict only that area in which the physician developed patient relationships using the practice group's resources.

Opinion at page 1.

My only other post on this case only noted the webcast for the arguments before the Indiana Supreme Court case and that did not mention any of the case's facts. The Indiana Supreme Court noted these facts:

For two years after leaving CIPs employ. Krueger would be prohibited from divulging the names of patients. contacting patients to provide podiatric services, and soliciting CIP employees. Krueger also would be prohibited from practicing podiatry for two years within a geographic area defined as fourteen listed central Indiana counties and "any other county where [CIP] maintained an office during the term of this Contract or in any county adjacent to any of the foregoing counties." CIP maintained an office in two unlisted counties, and another twenty-seven counties are contiguous to one or more of these sixteen. The restricted area thus consisted of forty-three counties, essentially the middle half of the state....

However, Krueger did not work in but about six counties. CIP sued Krueger for taking a position in Hamilton County which was very close to CIP's Nora office in Marion County. The trial court denied the preliminary injunction on grounds of being too geographically broad, but the Court of Appeals reversed and then the Indiana Supreme Court took transfer.

The case has several interesting points:

1. The Indiana Supreme Court held this case mooted because the time had run for the non-competition agreement but decided to proceed because of the need for clarifying non-competition agreements in the medical field.
   
2. Krueger argued (among other things) that his actions were justified by the Indiana Administrative Code - a new argument for me.
3. Krueger (relying on an American Medical Association position paper) also argued that non-competition agreements were void against public policy. (I wrote about non-compete agreements and doctors in Non-compete Agreements - The Medical Field, and there are links to articles that support Krueger's argument.)
   
4. Krueger took with him the list of his patients from the Nora office.
5. The Indiana Supreme Court struck down the provision against contiguous counties.
   

The Indiana Supreme Court shredded the third argument: for twenty some years Indiana case law allowed for physician non-compete agreements and the legislature has not acted to provide protection for physicians.

I find no mention of a trade secrets claim which seems to me a possible claim with the removal of the client list. However, pay close attention to Krueger's Indiana Administrative Code which was based on the 845 Ind. Admin. Code 1-6-1 (2004):

A podiatrist, upon his retirement, or upon discontinuation of the practice of podiatric medicine or surgery or upon leaving or moving from a community shall notify all of his active patients in writing. or by publication once a week for three (3) consecutive weeks in a newspaper of general circulation in the community, that he intends to discontinue his practice of podiatric medicine and surgery in the community, and shall encourage his patients to seek the services of another practitioner.

That administrative regulation complicates a trade secrets case - taking the list is probably not enough for a trade secrets suit without knowing more of what use is made of the list.

Frankly, striking the contiguous county provision is not a radical change in Indiana non-compete law. It does allow me to write on the problems of evidence. The following sentence from the opinion strikes me as showing the difference evidence makes in a case's success or failure:

We assume the dissent is correct that southern Hamilton Count) and northern Marion County, including the Nora area, form a common economic bond, but there is nothing to suggest that CIPs Nora office has a significant contingent of patients traveling from Arcadia. Atlanta, or other communities in northern Hamilton County. Accordingly. the contiguous county provision is unreasonable....

If the employer created a non-compete agreement including contiguous counties, then the employer had better have evidence that the business drew customers from those contiguous counties.

Trademarks and funeral homes?

See The Trademark Blog's More Skullduggery (yes, there is a pun in there):

"Funeral home dissolves, funeral director may or may not have agreed to not use his name pursuant to a non-compete clause, uses his name with new funeral home, old funeral home uses his name, lawsuit.

Nieberg et al v. Nieberg Midwood Chapel Inc., 08 CV 00392 (SDNY Jan 16 2008)."

I have tried for some time to convince my funeral home client of the need to register their servicemark. Funeral homes rise and fall on the reputation of their names - maybe even more than other businesses. Having registered the servicemark might have just add another layer to the non-competition claim but one that might succeed if the non-compete claim fails.

Noncompetition Agreements: Lexington Clinic sues former director

Out of Kentucky comes another non-compete agreement case out of the medical field, Lexington Clinic sues former director:

"The clinic sued Dr. Michael McKinney, a physician and onetime board member, alleging that while he was a director, McKinney secretly worked to establish a new medical practice in Jessamine County that would compete with Lexington Clinic."

***

Among other things, the suit alleges McKinney entered into a contract to work for a competing medical facility; worked to have other former clinic physicians join him in practicing medicine in competition with the clinic; and recruited or encouraged other clinic employees to leave the clinic and join a competing facility.

***

The suit also says that as a director, McKinney received or had access to the clinic's confidential, proprietary business and financial information and materials, which he has not returned.

The lawsuit alleges that McKinney breached his fiduciary duties as Lexington Clinic director by facilitating the establishment of a competing operation, and is in a position to "misappropriate" clinic trade secrets to the detriment of the clinic.

I have to say I find the breach of fiduciary duties more interesting than the non-compete agreement. This reports does good duty serving as a reminder that the facts determine the type of claim and that facts are shifty things.

Update 4/6/08: I finally got around to posting on Central Indiana Podiatry v. Kenneth Krueger which might have some interest to those reading this post. Indiana upholds non-competition agreements for physicians but strikes the particular non-compete against the doctor. See: Central Indiana Podiatry v. Kenneth Krueger - The Indiana Supreme Court Speaks and Thoughts on Central Indiana Podiatry, Non-Competes, Garden Leave, and Physician Employment Contracts.

Non Compete Agreements - An Article on Indiana Noncompetition Agreements

The good folks at Ice Miller placed Non-Competes Are Not Worth the Paper They Are Written On ... And Other Myths by Adam Arceneaux and Melanie Harris on the firm website. I do not see much different from what I have written about non-compete agreements (which you can find here), but it is shorter.

Google turned up another article here (DOC format) but which is not specifically about Indiana (we only get a paragraph).

For more of my articles on non-competition agreements, you need only click on the "Non-compete agreements" link below.

Remember that I represent both employers and employees in non-competition litigation. If you have an Indiana case, please give me a call.

Non compete agreements: When Selling a Business

In my Non-Compete FAQ I mentioned that Indiana courts treat differently a non-competition agreement as part of a sale of a business. Here are the reasons for the is difference:

1. there is more likely to be equal bargaining power between the parties;
   
2. Unlike an employee, the seller has the proceeds of the sale to support themselves without the need of entering the job market to survive;
3. A seller is usually paid a premium for agreeing not to compete with the buyer.
   
4. When buying a business' good will, then a broad noncompetition agreement may be necessary to assure that the buyer receives that which he purchased. . . .

How do Indiana courts judge covenants not to compete ancillary to the sale of a business?

1. the covenant is deemed to be reasonable where it is limited to the area of the business involved.
   
2. Reasonableness is again measured in terms of time, space, and prohibited activity.
3. Where the interest to be protected relates to the goodwill of the business, then the restraint can be no greater than necessary to protect the goodwill.

Remember, if you still have questions about non-competition agreements to check out the other articles on this blog. Just click here to see the other articles.

If you think you have a case (in Indiana), please give me a call.

Non compete Agreements: Getting Out Because of Employer's Breach

I realize my writings here on covenants not to compete emphasize having a well written non-compete agreement. This post concerns how a non compete can fail regardless of how well written.

On April 13, 2007, the Indiana Court of Appeals made the point that a non-competition agreement is a contract and contracts have duties and obligations for both sides of the agreement. In MILLSAP v. OHIO VALLEY HEARTCARE, INC. (PDF format), the employer breached its contract with employee and with its breach negated employee's obligations under the non competition agreement.

This article is somewhat of a follow to my earlier article about non-compete agreements and doctors, Non-compete Agreements - The Medical Field. You might want to check out that post. If you are interested in more than how Indiana treats noncompete agreements, you might want to read Medical Economics article When a noncompete isn't ironclad. The article puts Millsap in a larger context.

Indiana Non Compete Agreements - A Preliminary FAQ

What do the courts call an agreement preventing an employee from competing with a former employer?

The terms covenant not to compete, non compete agreements and non-competition agreements are synonymous. The agreement not to compete may be between a buyer and seller of a business or between employer and employee.

Is the non-compete agreement for an employee or for the seller of a business?

Indiana packs a difference of treatment in this distinction. Non-competition agreements covering employees came later to Indiana and are less favorably treated than those involving the sale of a business.


Does the employee's non compete agreement protect a legitimate business interest of the employer?

Protecting trade secrets is a legitimate business interest. For whether an Indiana business has a legitimate trade secret, see my articles here.

Protecting the business's goodwill is also a legitimate business interest.

If there is a legitimate business reason, then is the non compete agreement limited to the minimum time and area?

Indiana courts interpret covenants not to compete narrowly. The courts look at the reasonableness of the agreement. Pick the least amount of time needed to protect your trade secrets or business' goodwill. Pick the smallest geographical area covering the trade secrets or goodwill of the business. If the business did otherwise, then call a lawyer (and, yes, I would probably be available).

Even if protecting legitimate business interests and narrowly tailored to time and space, the non compete agreement may get struck as against public policy. Against what public policy? Against the policy of allowing Indiana's citizens to work where they want.


What is the Blue Pencil Doctrine?

Where the covenant not to compete has parts that can be upheld and other parts that cannot then the courts edit out (hence the blue pencil) the offensive parts. Where a covenant cannot be divided between the reasonable and unreasonable parts then the whole covenant is struck as bad.


Are Non-compete Agreements Worth the Paper They Are Written On?

While not trying to sound facetious, the quality of a non-compete agreement depends on how it is written. Buying a stock form from Office Depot will get you just as much as you invested in the agreement. I know one of my client was selective in suing over a non-compete agreement. The client had been in business for many years and knew which people would fail in their attempted competition. On the other hand, she sued whenever the person failed to make a clear distinction between her business and the new one.


When Should A Business Get an Employee to Sign a Non-Compete?

I say these scenarios require a non-compete agreement because not doing so imperils the business' ability to survive:

1. Whenever my client buys a business I want a non-compete for the former principals.
2. Whenever the business has trade secrets and the employee has access to those trade secrets. For more about trade secrets, see my trade secret articles here.
3. Whenever the employee's contacts with clients contributes to the business' goodwill.
   

I have written other articles on non-compete agreements detailing more specific issues that you can reach by following this link.

Non-Competition Agreements - Hurting Business Development?

So suggests Spark Capital’s Bijan Sabet Says Cross Out Those Non-Compete Clauses—An Xconomy Interview.

Which gives us a chance to talk about policy. Those wanting to know the technical aspects of Indiana's law on non-competition agreements might want to click on the link below next to the word "Label" that reads "Non-compete agreements."

Is this just a Massachusetts problem or one that affects Indiana, too? I wrote an earlier article touching on this subject in Legislating against non-compete agreements?.

I think this is the second article I have read where Massachusetts blames its non-competition agreement law. Everyone living in Indiana knows that we have a struggling economy, one without the high tech start ups in Silicon Valley. I can think of many reasons for this but I would not put our law on non-competition agreements on the list. If anyone cares to correct me, I will be happy to listen. Please feel free to use the "Post a Comment" button below.

Meanwhile, let me explain my opinion. Indiana law does not favor non-compete agreements in employment contracts. Our laws favors their use in the sale of a business a bit more. I noticed that the person interviewed in the original article muddles the use of non-competition agreements employees and for the sale of a business. I have a hard time imagining where I would not counsel a client buying a business to include a non-compete agreement covering the seller. Likewise, I would counsel the seller to get the most narrowly drawn non-competition agreement possible. Does this stifle competition or does it prevent unfair competition?

Indiana law disfavors non-compete agreements by construing them to the narrowest time and area for protecting the employer or the buyer of a business. I have heard complaints that a non-competition agreement was worthless. I assume that the agreement was too broad. That it was too broad comes from poor drafting. Succeeding in court on a non-competition agreement starts a well drafted agreement. No making a silk purse out of a sow's ear in these kind of cases.

Which brings me back to the original question. When the law requires rigid compliance with the rules regarding time and place so not to stifle competition, does this in fact stifle competition as it seems to have done in Massachusetts? Or are the complete lack of non-compete agreements all that makes California such a haven for high-tech companies?

Non-Compete Agreements on YouTube

I confess YouTube is a website I seldom visit. Friends send me links to music videos and that is the only time I get to the place. Such is my explanation for being surprised to find two short clips from Alan Crone of Crone & Mason, PLC, discussing non-competition agreements. My surprise increased when I found them to have some use for Indiana as well as Tennessee.

http://youtube.com/watch?v=vruN1QA25f8

Trade Secrets - Michigan Departing Employees Case

Thanks to Womble Carlyle's Trade Secrets Blog for the heads up on a Michigan case of another departing employee trade secrets case. See Trade Secrets Battle in Detroit - MSC Software Corp. vs. Altair Engineering Inc. and Seven Former MSC Employees. I do like the explanation that hiring of a competitor's former employees was a coincidence. Employing a competitor's former employees does seem to have a benefit - it keeps lawyers employed. Here are the good bits from the Trade Secrets Blog:

Crain's Detroit Business is reporting that Troy, Michigan-based Altair Engineering Inc. wants a federal judge to appoint a programming expert to determine whether any computer codes link Altair's new prototype simulation software to a competitor's.

***

MSC filed the lawsuit in July and agreed to dismiss one of the eight former employees from the suit in September."It was people who all worked previously at MSC and moved to the Altair offices," said attorney James Hermon of Dykema Gossett P.L.L.C., one of MSC's attorneys. "They all came out of the Ann Arbor office where this product originates."

The suit alleges that Altair hired more than "20 percent of the MSC Software Adams Group," developed a product using trade secrets and "undertook an aggressive program to induce Adams/Car customers to abandon Adams/Car and adopt Altair MotionView."

Strictly a coincidence, said attorney C. Thomas Ludden of Bloomfield Hills-based Lipson, Nielson, Cole, Seltzer & Garin P.C., who represents the employees. He contends that his clients left MSC at varying times for varying reasons."Our position is — and we've stated as much in the pleadings — that we deny any theft of trade secrets," Ludden said. "We deny that we've done anything to break any laws or even violate a noncompete or confidentiality agreement. The clients moved for all the usual reasons you might change employers."

Remember if you think you have a trade secrets problem in Indiana to contact me.

For other articles on this blog about trade secrets, you need only click the link below next to Label that reads "Trade Secrets".

Trade Secrets and Covenants Not To Compete Basic Law and Procedures - Labor and Employment Law

Just a heads up for those researching trade secrets - the American Bar Association maintains a page with some general materials on trade secrets: Trade Secrets and Covenants Not To Compete Basic Law and Procedures - Labor and Employment Law.

Non-compete Agreements - The Medical Field

Are Indiana doctors restricted by a non-competition agreements?

I say that depends on the case. Indiana lacks any bias favoring restrictive employment covenants in general, and using covenants not to compete with professionals raises some specific objections.

Take a look at Duneland Emergency Physician’s Med. Group, P.C. v. Brunk, 723 N.E.2d 963. (Ind. Ct. App. 2000) (Microsoft Word format).

Interesting to me (and, hopefully, you) was find the following articles online. I suspect Indiana's answer differs from some states.

If are in Indiana and need an attorney to help you with a non-compete agreement, please contact me.

Contracts and Emergency Medicine: Restrictive Covenants. Which has some great advice I wish more of my clients would heed:

These points are frequently moot because most physicians cannot sustain a lawsuit against a corporate entity or hospital for any given length of time, especially without an income while contractual terms are being ironed out in court. It is best to avoid litigation in the first place, and to get these clauses out of the original contract. EPs in general have different issues from other specialties. Covenants invalidated based on public policy tend to be invalidated because the field is highly specialized or geographically underserved.

Update On Covenants Not To Compete: Will They Survive In The Healthcare Industry?:

"Covenants not to compete undergo considerable scrutiny in all industries. In healthcare, however, proponents of covenants not to compete must argue for enforcement of the covenant against the countervailing weight of the rights of patients to be treated by their own physicians at the hospitals of their choice, as well as the community need for the type of medical service the physician provides. It has been argued that the public interest in supporting those hospitals willing to make a financial commitment to establish a medical specialty practice is given little consideration in many recent cases, where courts have voided the covenant not to compete. Courts around the country are starting to internalize this point of view, and increasingly are balancing the equities of the particular facts and circumstances to determine whether the restrictive covenant should be upheld."

AAEM WHITE PAPER ON RESTRICTIVE COVENANTS:

The American Academy of Emergency Medicine (AAEM) opposes the use of postcontractual restrictive covenants, or “non-compete clauses,” in physician contracts. Some contract holders and hospital administrators control emergency physicians through exploitative contractual provisions. These provisions include restrictive covenants that control where emergency physicians may work, violating their professional rights and effectively preventing them from advocating for their patients. The threat of termination from a hospital medical staff as well as a restrictive covenant, may prevent physicians from advocating for their patients if the hospital or contract holder opposes such advocacy.

No, I really do not see Indiana changing its position on using non-compete agreements against physician employees.

Update 4/6/08: I finally got around to posting on Central Indiana Podiatry v. Kenneth Krueger. See: Central Indiana Podiatry v. Kenneth Krueger - The Indiana Supreme Court Speaks and Thoughts on Central Indiana Podiatry, Non-Competes, Garden Leave, and Physician Employment Contracts.

Hiring people with trade secrets

About eight months ago I posted Leaving a job with a non-compete? Got any savings for the litigation expenses? and then I published Non-Competition Agreement and Trade secrets - local news. In those posts I wrote about the dangers of hiring someone with a noncompete agreement or a non-compete agreement and possessing trade secrets.

I would generally say that if there are trade secrets then a non-competition agreement is mandatory. Then today I ran across this article from Business Insurance: Arch misappropriated Gen Re trade secrets: Judge.

Connecticut Superior Court Judge Taggart Adams on Wednesday ordered Arch not to use or divulge any Gen Re proprietary information or trade secrets, including loss cost data that the judge concluded Arch officials were using to compete with Gen Re.

***

None of the four top officials had employment contracts or noncompete agreements with Gen Re. Nevertheless, the Stamford, Conn.-based reinsurer sued Arch and the four executives variously for breach of fiduciary duties, tortious interference with business contracts and violations of a state trade secrets law.

So much for general rules? No. I still want a noncompetition agreement for these type of employees. After all, an ounce of prevention does save the client business in attorney fees. (What is better for good lawyer-client relations than keeping fees reasonable and keeping the business well-protected).

For my other posts on trade secrets just click on the link below that reads "Label: trade secrets". You can do the same for my non-compete agreements posts.

Trade secrets - an overview

USA Today published an article Ask an Expert: Protecting your customer list that is a succinct and simple overview of trade secrets, confidential agreements, non-competition agreements, non-solicitation and non-disclosure agreements.

It has some of the same information as I have published on this blog but is a good starting place. Read the article and then come back here for some more detail on trade secrets, non-disclosure agreements, and/or non-competition agreements.

If you need to hire legal counsel for an Indiana case involving trade secrets or non-competition agreements, please contract me.

Indiana Supreme Court - webcast, non-compete agreements

Last week, the Indiana Supreme Court had oral arguments in the case of Central Indiana Podiatry v. Kenneth Krueger. Follow that link to watch the webcast. The court's website summarizes this case:

Central Indiana Podiatry filed a complaint against Krueger, a former employee, alleging that Krueger had violated the parties’ employment contract, which included a non-compete provision. The trial court denied Central Indiana Podiatry’s request for a preliminary injunction, but the Court of Appeals reversed, holding that the non-compete clause was reasonable and enforceable and that the other elements for a preliminary injunction had been established. Central Indiana Podiatry, P.C. v. Krueger, 859 N.E.2d 686 (Ind. Ct. App. 2007), vacated. The Supreme Court has granted a petition to transfer the case and has assumed jurisdiction over the appeal.

Update 4/16/08: The Indiana Supreme Court has since handed down its decision in this case. See my posts Central Indiana Podiatry v. Kenneth Krueger - The Indiana Supreme Court Speaks and Thoughts on Central Indiana Podiatry, Non-Competes, Garden Leave, and Physician Employment Contracts.

Do remember that this office is taking on non-compete work.

Five Ways to Legally Hurt Your Business

A list of things that a business can do to hurt itself by not taking the proper precautions under the law.

1. Fly Solo.

Business has enough risks, so why risk both your business and your personal assets? Operating as a corporation or a limited liability company protects your persons assets from your business creditors. Setting up a corporation or a limited liability company is relatively inexpensive - far more inexpensive than finding your home and personal bank accounts attached by your business creditors.

2. Not Setting Up a Corporation or Limited Liability Company Properly.

Paying an attorney to set up a corporation or a limited liability company looked like an avoidable expense when you saw that online or computerized program. If you cannot afford an attorney for an incorporation or a limited liability company, then you need to seriously consider whether you have the capital to run your business. Incorporating a business involves more than sending the Indiana Secretary of State Articles of Incorporation and a check. You do not want to wake up on day and find out that your incorporation incorporated nothing. Why not? See #1. An LLC operating agreement is a true retail product and you can find yourself with even more problems than with a stillborn corporation. These kinds of problems lead two kinds of attorney fees: big ones or just one to a bankruptcy attorney.

3. Fail to Protect Your Intellectual Property.

What is intellectual property? Trademarks, copyrights, patents, and trade secrets. The first three require filings with the federal government for full protection. Trade secrets require self-help. More importantly: these are the things that you actually make you money. If someone uses your business name or your business product, this steals from the work you did. Don’t protect it and it is gone and so goes your business. You need an attorney for the work on trademarks and copyrights and patents (you actually need a patent lawyer for patents), and you should have an attorney to review your trade secret protections. If you cannot afford these services, then you better ask yourself if you can afford to stay in business.

4. Fail to Protect Against Employees.

You know to keep an eye on the cash register even if your business no longer has a cash register. What about the other assets of your business? The trade secrets, the company goodwill, the company client list? Ask this about your employees: if any left, which ones could truly harm the business? Now ask yourself about those particular employees: do I have a non-compete agreement? If not, why not?

5. Never Establish a Working Relationship with your attorney.

Here is the best tip I can give any business owner on saving money: get your attorney involved at the start of the process and not at the end. Litigation costs more than a year’s consultation.

Legislating against non-compete agreements?

No, this is not about Indiana law. It is about Connecticut law. Employer's Law Blog blogs about this subject under the title The Proposed Demise of the Noncompete Agreement. The post mentions an exception for protecting trade secrets.

All this got me thinking about the effect of such a law in Indiana. Most of my cases involve franchisees or sales people, and those cases all involve trade secrets. I am really trying to figure out how it would affect the businesses I am most aware of and not having much success. From the litigation side of things, I think the cases intermixing trade secrets and non-compete agreements are the stronger and those not involving trade secrets are likely to fail. I see a greater effect on the drafting side of business - a shrinking of the business of drafting non-compete agreements.

I started research a British concept called garden leave but have had to take a break before getting very far into my research. Basically the concept is to pay the employee to stay at home for the balance of their employment contract. Without reading the Connecticut law (sorry but there are limits to my curiosity - mostly time), I think such a law would provide a market for garden leave provisions in employment contracts.

If anyone has any opinions, do go to the Comment link below as I would be interesting hearing them.