Indiana Appeals Court Rejects Noncompete That Prevented Work in Any Capacity

Quick Hits

• The Indiana Court of Appeals confirmed the longstanding rule that continued employment can serve as valid consideration for a new noncompete agreement signed by an at-will employee, even if the employee lacks a guarantee of ongoing employment.
• The court affirmed the denial of a preliminary injunction against a former COO, finding the 2014 noncompete agreement overly broad and lacking evidence of a breach of nondisclosure provisions.
• This decision underscores that while employers in Indiana can enforce new noncompete agreements with continued employment as consideration, those agreements must still be reasonable, narrowly tailored, and lawful.

In Med-1 Solutions, LLC v. Taylor, a group of medical fee collection companies collectively referred to as RevOne Companies sought to enforce a series of noncompete agreements to stop a former chief officer from taking a job with another company that also provides revenue-cycle to healthcare clients.

A panel for the Indiana Court of Appeals disagreed with a trial court’s ruling that a 2014 “non-competition agreement” was not supported by consideration since employment served as the consideration for a similar agreement signed in 2010. The appellate court held when an at-will employee signs a noncompete agreement at hiring and is later required to sign a subsequent agreement to continue his or her employment, the continued employment can serve as consideration for the latter agreement.

However, the appellate court ultimately affirmed the denial of a preliminary injunction to block the former COO’s move, finding that the 2014 agreement was likely overbroad and RevOne lacked evidence that she broke a nondisclosure provision.

Consideration

The employee had signed a noncompete when she was hired in 2010 and then, in 2014, was presented with a broader agreement, which included a severability clause and a nondisclosure provision, that she was required to sign to maintain her employment.

Because an at-will employee has “no legal right to continued employment,” a promise of continued employment “was a benefit … to which [the employee] would not have otherwise been entitled,” the appellate court said. Even though there was no promise of employment for a certain duration and the employer retained the right to discharge the employee at any time after, the court noted that it does not analyze the “adequacy of consideration.”

Overbreadth

But despite finding there was consideration to support the 2014 agreement, the appellate court found that RevOne had not shown a likelihood of success on the merits. The 2014 agreement was overbroad in that it prevented the employee from working for a competitor in any capacity. The court noted that such agreements are “unreasonable because they extend beyond the scope of the employer’s legitimate interests,” the court said.

The court further declined to erase or “blue-pencil” portions of the agreement to make it enforceable, finding that “there is no portion we could strike to render the remainder reasonable; any language that would remain would still bar [the employee] from working for a competitor in any capacity or from competing with every practice area of the RevOne Companies, even those with which she was never associated.”

Inevitable Disclosure

Finally, the appellate court rejected RevOne’s argument that the employee violated a nondisclosure portion of the 2014 agreement because she would “inevitably disclose” the company’s confidential or proprietary information. The appellate court found RevOne had not alleged sufficient evidence to support the inevitable disclosure doctrine even though the company had presented evidence that the employee had “accessed” confidential files during the months between when she tendered resignation and her actual departure from the company.

Key Takeaways

The decision highlights that under Indiana law, employers can require employees to sign new noncompete agreements with the understanding that continued employment is consideration for the agreement even if there is no guarantee of employment for a set period. Indiana courts will not assess the adequacy of the consideration. However, subsequent agreements will still be assessed for reasonableness and lawfulness. The ruling also reinforces the lesson that employers may want to draft noncompetes narrowly and reasonably, avoiding provisions that restrict employees from competing in “any capacity.”

Ogletree Deakins’ Indianapolis Office will continue to monitor developments and will provide updates on the Indiana and Unfair Competition and Trade Secrets blogs.

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