In a fairly straightforward analysis, the Court of Appeals of Indiana reversed the trial court's grant of a preliminary injunction in favor of a former employer due to its finding that the underlying non-competition clause was unenforceable. The defendant/appellant in this case worked at plaintiff/appellee Dow Agrosciences, LLC ("DAS") as a district sales manager in its crop protection business, and signed an employee agreement that included a non-competition provision. As part of this provision, he agreed that for a period of two years from the date of termination of his employment he would not "engage in or contribute [his] knowledge to any work or activity involving an area of technology or business that is then competitive with a technology or business with respect to which [he] had access to Confidential Information during the five years immediately prior to such termination." He also agreed that during such two year period he would not interfere with or disrupt the business relationship carried on by DAS with any of its customers. The non-compete clause did include a provision that would allow him to use his valuable knowledge for any work or activity if he furnished to DAS "clear and convincing written evidence, including assurances from [him] and [his] new employer, that the fulfillment of [his] duties in such proposed work or activity would not inevitably cause [him] to disclose, base judgments upon, or use any Confidential Information."
Defendant/appellant continued to work for DAS in a variety of positions for a period of a few years and had access to confidential information. He then received an offer from Pioneer, a competitor of DAS. Defendant/appellant apprised Pioneer of the possible issues involved, and Pioneer made him an offer contingent upon his obtaining written consent from DAS per the terms of the non-competition provision. Although defendant/appellant spoke to various people at DAS and sent them correspondence explaining how his DAS job differs from the potential opportunity with Pioneer, DAS declined to provide the required consent. Notwithstanding, and after meeting with his personal attorney, defendant/appellant decided to accept the Pioneer offer and Pioneer apparently agreed to cover his reasonable legal expenses in the event that DAS sued. Roughly ten days after he started working at Pioneer, DAS filed a complaint and motion for preliminary injunction.
Although the trial court granted the preliminary injunction, the Court of Appeals reversed. A grant or denial of a preliminary injunction by the court involves an analysis of various factors which include: (1) the adequacy of the remedies at law and whether the plaintiff would be caused irreparable harm in the event the injunction does not issue, (2) whether the plaintiff demonstrates a reasonable likelihood of success at trial, (3) whether the injury to the plaintiff outweighs the threatened harm of an injunction to the defendant, and (4) the public interest.
In the appeal, plaintiff/appellant argued that the non-compete provision is void due to a lack of geographic limitation or customer-specific restriction. The Court began its analysis by stating the general rule that "[a]greements involving covenants not to compete are in restraint of trade and are not favored in the law." They should, therefore, only be enforced if the restraint (1) is reasonably necessary to protect a legitimate interest of the employer, (2) is not unreasonably restrictive of the employee, and (3) is not against public policy.
In evaluating the legitimate employer interest element, the Court agreed with the trial court that defendant/appellant possessed confidential and highly confidential information in a variety of areas, and that DAS had a legitimate interest in protecting such highly confidential information. The Court of Appeals, thus, concluded that the trial court did not abuse its discretion (the standard of review in such cases) as it pertains to the first prong of the reasonableness test.
As for the scope of the restriction and its reasonableness as to defendant/appellant, the Court began its analysis by stating that this means reasonableness "in terms of time, geography, and types of activity prohibited." Since courts routinely find two-year non-competition durations as being reasonable, defendant/appellant did not challenge the time limitation imposed by the non-compete provision. He did, however, take issue with the lack of geographic limitation or any customer-specific restriction in the non-compete clause. The Court analyzed the language of the provision and determined that even if defendant/appellant did not possess confidential information in certain areas, simply having "access to" such information would be enough to trigger the non-competition clause. Additionally, the preclusion from interfering or disrupting DAS's business relations with "any" of its customers without a distinction between past, present, or future customers is quite broad (see above excerpts from the non-compete clause, specifically, the blue wording). The Court also noted that defendant/appellant's resignation letter included written assurances, pursuant to the "consent" exception in the agreement, as well as specific examples relating to his ability to fulfill his new duties at Pioneer without disclosing or using any confidential information that he obtained at DAS. Apparently, Pioneer offered similar assurances to DAS that defendant/appellant's new position would not violate the non-competition clause, but DAS was not convinced. The Court seems to believe that such assurances should have sufficed, but for "the breadth of the non-competition clause," and DAS's belief that the clause was applicable to virtually the the entire world.
In so determining, the Court briefly analyzed the public policy prong of the reasonableness test in general terms. It stated that the best interest of the public is for persons not to be "unnecessarily restricted in their freedom [to] contract." As it relates to the instant matter, the Court stated that DAS effectively prevented defendant/appellant "from carrying on his calling. This it cannot do." The Court of Appeals, therefore, held that while DAS's interest was legitimate, the restraint imposed by the non-compete provision was overly broad in scope and against public policy, thereby making it unreasonable. Hence, it reversed the grant of the preliminary injunction for DAS.
Glenn v. Dow Agrosciences, LLC, 2007 WL 286582 (Ind. App., Feb. 2, 2007).