24 Hoosier Banker May 2015 HUMAN RESOURCES Bank executives in Indiana should consider with care the use of noncompete and non-solicitation agreements for upper-level employees. Indiana courts have recently decided a handful of cases which display a reluctance to enforce these agreements. Following are summaries of five cases decided in 2014: Clark’s Sales and Serv., Inc. v. John D. Smith and Ferguson Enter.1 Clark’s Sales and Service Inc. (Clarks) sought a preliminary injunction to enforce a restrictive covenant/noncompetition provision between a former employee, John D. Smith, and his new employer, Ferguson Enterprises Inc. (Ferguson). The Court of Appeals noted that Clark’s had a legitimate, protectable interest in protecting goodwill with its business accounts and referral network. However, the Court determined that the restrictive covenant was not reasonable as to its scope of activities and restricted geographic area, and held that the covenant was unreasonable in covering all of Clark’s customers throughout Smith’s 14-year employment. The covenant included customers with whom Smith had no contact, minimal contact or harmless contact. While the Court found the 50-mile geographic restriction reasonable in light of Clark’s prominence in the high-end appliance business, it determined that the geographic restrictions as written were unreasonable in restricting any state in which H.H. Gregg does business, the entirety of Indiana and any county in which Clark’s has at least one customer. Clark’s requested the Court consider the blue pencil doctrine in its review of the restrictive covenant. The Court noted that the portions requested to be considered under the blue pencil doctrine were written as an indiscrete whole, with no clear separation of terms or clauses. Zimmer, Inc. v. David Masters and Andrew Masters.2 David Masters and Andrew Masters (Team Masters) signed non-competition/non-solicitation agreements with Zimmer Inc. (Zimmer). David Masters resigned from Zimmer; he notified Zimmer that he intended to join Medacta, a competitor, and that Andrew Masters would be joining him. Zimmer contended that David Masters provided Medacta with confidential information while still employed by Zimmer, and sought a temporary restraining order and preliminary injunction against Team Masters. The Federal Court judge took issue with the phrase, “Customers or Active Prospects in the Restricted Geographic Area,” holding that the non-solicitation covenant is unenforceable because of its failure to define a definite geographic area or a definite class of people and institutions Team Masters could not contact. The Court held that, while the balance of harms slightly favored Zimmer, the likelihood of success on the merits was negligible at best, and the imbalance did not support a preliminary injunction. Distrib. Serv., Inc. v. Rusty J. Stevenson and Rugby IPD Corp., d/b/a Rugby Architectural Bldg. Prod.3 In 2009 Rusty Stevenson signed a non-competition/non-solicitation agreement with Distributor Service Inc. (DSI). In 2013 Stevenson resigned from DSI and took a position with Rugby IDP Corp., d/b/a Rugby Architectural Building Products (Rugby), a DSI competitor. The Court concluded that the goodwill DSI built through Stevenson was a legitimate, protectable interest. However the Court determined that the non-compete provision was overbroad and unenforceable, as it covered positions with a competitor that were not directly related to Stevenson’s position with DSI. For example, in addition to covering a position in sales, the provision also covered janitorial and landscaping services. About the Author Mark R. Waterfill is a partner with Benesch Friedlander Coplan & Aronoff LLP, Indianapolis, serving in the labor & employment and litigation practice groups. He has handled first-chair responsibility in several complex litigation matters and has litigated and successfully argued before the Indiana Court of Appeals on covenant not-to-compete and employment law issues. Waterfill earned a bachelor’s degree from Hanover College and a JD from the Indiana University Maurer School of Law. The author can be reached at 317-632-3232, ext. 119, email: mwaterfill@Beneschlaw.com. Benesch Friedlander Coplan & Aronoff LLP is an associate member of the Indiana Bankers Association. Banks Should Take a Careful Look at Employment Contracts
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