Employers Beware With Your Non-Competes: The Blue Pencil Doctrine is Really ONLY an Eraser

by Karen Young

On December 3, 2019, the Indiana Supreme Court clarified the limited power courts have to revise non-competition agreements.  While Indiana is a “blue pencil doctrine” state, courts won’t do your drafting for you.

The facts of the case, Heraeus Medical, LLC, v. Zimmer, Inc., et. al., 135 N.E.3d 150 (Ind. 2019), are these:

  • An employee signed a noncompete agreement with his employer, Zimmer, Inc.
  • The non-compete agreement included a non-solicitation covenant which prohibited the employee from, upon termination, recruiting other employees of Zimmer from going to work for a competitor.
  • The employee then left Zimmer and went to work for one of Zimmer’s competitors, Heraeus Medical.
  • In his new role, the now former employee met with employees of Zimmer, and “[e]ventually, several positions at Heraeus Medical were filled by former Zimmer employees.”
  • Zimmer brought suit seeking enforcement of the non-solicitation provision and a preliminary injunction.

The case went before the Indiana Supreme Court to review whether a contract’s reformation clause gave a court the power to add language to an unenforceable restrictive covenant of a noncompetition agreement, such as a non-solicitation provision, as the lower court had done.  As we all know, noncompetition agreements are strictly construed against employers and not favored by courts because they are in “restraint of trade” and may hinder an individual’s ability to provide a livelihood for himself/herself.  Therefore, courts enforce such agreements only if they are reasonable.

The Supreme Court decided that, “[c]onsistent with the history and purpose of Indiana’s blue pencil doctrine, courts cannot add terms to an unenforceable restrictive covenant in a noncompetition agreement – even when that agreement contains language purporting to give a court the power to do so. And because Zimmer’s non-solicitation covenant is overbroad and cannot be blue-penciled in a way that would render it reasonable under Indiana law, the covenant is void and unenforceable.”

“The [blue pencil] doctrine allows an employer to draft a reasonable and enforceable noncompetition agreement, while discouraging the employer from overreaching.” EMPLOYERS BEWARE! You don’t get a second chance.  Don’t rely on the courts to clean up your agreements. If the restrictive provisions in the noncompete agreement you use with your employees is overly broad or unreasonable, that covenant could be thrown out altogether – as courts will only use the blue pencil doctrine as an eraser for unreasonable provisions. Courts will not revise agreements that risk subjecting parties to agreements they didn’t make.

Further, the court affirmatively stated that an enforceable non-solicitation provision cannot be so broad as to prohibit an employee from soliciting all employees, but rather, must be targeted to prohibit solicitation of only those employees that have a protectable interest with the employer. This is a much narrower stance than Indiana courts have previously taken on non-solicitation clauses.  Therefore, employers need to consider whether to revise their existing agreements already signed by employees, as well as their form agreements for future employees, to narrow  the non-solicitation provision  and avoid problems with enforcement. 

When was the last time you looked at your employment agreements? Reach out to Gutwein Law and our employment law resources if you need a review of your existing employment agreements. We're here to help.