Indiana Appellate Court Rules Medical Company’s Non-Compete Agreement with Chief Operating Officer is Overbroad and Inenforceable
In Med-1 Solutions, LLC. v. Taylor, (Opinion 24A – PL-450, Nov 25, 2024), RevOne Companies, a group of medical fees collection companies, attempted to enforce the non-compete covenant against their former executive, former Chief Operating Office (the “Defendant”), following her resignation from her position. The trial court refused to enforce the noncompete, citing a restriction that prohibited her from working in any capacity for a competitor as being overbroad and unenforceable. The RevOne Companies appealed to the Indiana appellate courts. On November 25, 2024, they affirmed the decision of the trial court. The appellate court held that such broad activities restrictions are “unreasonable because they extend beyond the scope of the employer’s legitimate interests.”
While the appellate court did not invoke the oft-cited “janitor rule” by name, the decision is consistent with the rule. The “janitor’s rule” states that a court shouldn’t enforce a non-compete that prohibits an employee from working for a competitor at any level. The “janitorial” rule is used by courts to argue that a noncompete should contain more specific restrictions on post-employment employment. A more narrowly tailored restriction might prohibit an employee from taking on a similar or identical role to the one they held with their former employer, or from working in a capacity which could expose confidential information of the former company. If the non-compete clause is so broad that it prevents the former employee from even working as a janitor for a competitor, a court may find the covenant unenforceable.
Some state courts are allowed to “blue pencil” or modify overly broad covenants in order to make them enforceable as far as the law allows. Some states, such as Indiana, allow courts to exercise limited discretion in “blue-penciling” overly wide covenants. Indiana courts can delete unreasonable provisions if they are severable. However, they cannot add new provisions or modify the covenant. The Indiana court didn’t exercise its limited discretion in the end. As the new year approaches it is a good time for employers, including those with restrictive covenant agreements, audit their employment documents to ensure they are compliant with applicable law. Employers who are considering new or amended restrictive agreements with existing employees, rather than only with new hires, must be aware that certain states require independent considerations beyond continued employment.
