Changes Looming to Overtime Eligibility

Currently, if you are a salaried employee, earning between $23,660 and $47,476 per year and have some managerial or decision-making authority, you are likely classified as an “exempt” employee, which means that you are not eligible for overtime pay if you work more than 40 hours in week.

However, a new regulation announced today (May 18, 2016) by the White House and the Labor Department may change that before the end of this year. The new regulation, which is set to go into effect on December 1, 2016, would require that most salaried employees earning up to $47,476 per year must now receive time-and-a-half overtime pay when they work more than 40 hours in a week. The previous cutoff for overtime pay, set in 2004, was $23,660.

Employees currently earning annual compensation less than the new threshold will likely experience one of the following changes in their employment: (1) they make more money – if their employers make no changes to base compensation or number of hours worked, many employees will reap the financial benefits of overtime compensation when they work in excess of 40 hours in a week; (2) they may get a raise in base salary – some employers may increase base compensation to an amount that exceeds the new threshold, thereby maintaining the employee’s “exempt” status; (3) they may work fewer hours – the new regulations may cause employers to limit the number of hours affected employees work each week, thereby avoiding the obligation to pay overtime compensation, but this would also result in less overall compensation for workers accustomed to working over 40 hours per week; (4) they may experience no compensation change at all – employers may opt to lower the base salaries of affected employees, such that their overall pay (including base wages and overtime pay) remains roughly unchanged, but employers taking this route can expect unfavorable reactions and increased turnover among affected employees; or (5) they may see a reduction in other employment benefits – employers may seek to offset the increased costs of having to pay overtime compensation by cutting back in other areas.

If you would like more information about overtime compensation or would like more information about the employment and business legal services we offer, please contact Dan Burke at 317.709.4242, or

What is the “Blue Pencil” Doctrine?

As noted in previous postings, Indiana courts will enforce reasonable noncompete agreements. But, what happens if parts of a noncompetition agreement are reasonable and others reach too far? In these situations, the court has the ability to use its “blue pencil” to craft a reasonable and enforceable restriction.

How is the “Blue Pencil” Doctrine Applied?

When presented with an overly broad noncompete, a court may apply the blue pencil doctrine if: (1) the covenant is clearly divisible into separate parts; and (2) some of the parts are reasonable and others or not.

As the Indiana Supreme Court has determined, a noncompete agreement is clearly divisible if it is clearly separated into parts. Recently, the Indiana Court of Appeals clarified that the court may not use its blue pencil where the noncompete provision is expressed as an “indiscrete whole.” In other words, the blue pencil should not be used where the noncompete has no “clear separation of terms or clauses that were or could be intended to be excised from the whole without changing the entire meaning and import of the passage.” Clark’s Sales and Service, Inc. v. Smith, 4 N.E.3d 772, 784 (Ind. Ct. App. 2014). In Clark’s Sales, the court refused to apply the blue pencil to “redact sentence fragments from the indivisible whole of each contested paragraph.”

Assuming the noncompete is sufficiently divisible, the court may apply its blue pencil by striking the unreasonable portions and enforcing the remaining reasonable portions. However, when interpreting a noncompete agreement, a court is not allowed to add or modify the language of the agreement – it can only delete divisible, unreasonable parts. This is because permitting a court to add or modify language would subject the parties to an agreement they did not actually make.

What is the State of the “Blue Pencil” Doctrine After Clark’s Sales?

For many years, employers used noncompete agreements to limit competition and minimize employee movement by imposing broad – seemingly absolute – prohibitions on competition, while also including reasonable restrictions that would survive application of the blue pencil.

But, in Clark’s Sales, the court was critical of this practice. In fact, the court labeled this approach “unsavory” and noted that it “leads to great uncertainty in contracting and does not promote good public policy regarding the relationship between employees and employers.” The court was also critical of the in terrorem effect that noncompete agreements can have on current and former employees – that broad noncompete agreements can be used to scare or intimidate employees from pursuing employment or business opportunities. The court reasoned that “Indiana courts will not engage in rewriting the covenant, as ‘the courts need not do for the employer what it should have done in the first place – write a reasonable covenant.’” Indeed, the court admonished that “the consequence to employers for drafting such overreaching contract is that the covenant cannot be enforced at all.”

So, while a noncompete agreement can be a valuable tool for protecting an employer’s business interests, it must be used with great care and precision.

For more information, please contact Dan Burke at or 317-709-4242. 

Agreement Not to Solicit Employees of Former Employer

Indiana law is fairly well developed with respect to the interpretation and enforcement of noncompetition agreements in the employment context. As noted in previous posts [], Indiana courts view noncompete agreements as a restraint on trade but will enforce them if they are reasonable and necessary to protect an employer’s legitimate business interest. On the other hand, restrictive covenants pertaining to the solicitation of employees have not yet received the same degree of judicial attention. Still, the Indiana Court of Appeals has provided some guidance.

In Enhanced Network Solutions Group, Inc. v. Hypersonic Technologies, Inc., the Indiana Court of Appeals concluded that no breach of a non-solicitation agreement occurs where the prospective employee initiates contact and the party bound by the restrictive covenant merely provides requested information, interviews the applicant and ultimately makes an employment offer.

In that case, Enhanced Network Solutions (“ENS”), which was in the business of modifying existing software to meet its clients’ needs, and Hypersonic, a Fort Wayne-based software engineering firm, entered into an agreement containing a non-solicitation provision, which reads (in pertinent part): "During the term of this Agreement and for a period of twelve (12) months from the date of effective date of its termination, unless mutually agreed to in writing otherwise the Parties (including any successor-in-interest or related company) shall refrain from soliciting, inducing, or attempting to solicit or induce, any employee of the other Party in any manner that may be reasonably expected to bring about the termination of said employee." 

The parties ultimately terminated their agreement; however, before the relationship ended, Hypersonic posted an opening for an outside sales representative on LinkedIn. Following the termination of the parties’ agreement, Robert Dobson, an employee of ENS, contacted Hypersonic regarding the opening.  Shortly thereafter, Hypersonic’s owner and president had a lunch meeting with Mr. Dobson, during which they responded to Mr. Dobson’s requests for information about the open position but did not make an offer at that time. Mr. Dobson continued his dialogue with Hypersonic, applied for the position and received an offer. After hiring Mr. Dobson, Hypersonic filed a declaratory judgment action, asking court to interpret the enforceability of the non-solicitation provision. The trial court issued an order declaring that “Hypersonic did not solicit, induce or attempt to solicit or induce Dobson to terminate his employment with ENS.”

On appeal, the court began its analysis by noting that the agreement contained no definition for the terms “solicit” and “induce.”  The court further noted that there was no case law discussing the precise meaning of these terms. Accordingly, the court turned to Black’s Law Dictionary, which defines “solicitation” as the “act or an instance of requesting or seeking to obtain something; a request or petition,” and which defines “inducement” as “the act or process of enticing or persuading another person to take a certain course of action.” 

Applying these definitions, the court concluded that Hypersonic had not solicited or induced Mr. Dobson to leave ENS.  On the contrary, the court concluded that, by initiating contact with Hypersonic, requesting information and applying for an open position, Mr. Dobson had actually solicited Hypersonic. More importantly, Hypersonic’s conduct, providing requested information and ultimately offering employment, did not constitute solicitation or inducement.

If you would like more information about non-solicitation agreements in Indiana or would like more information about the business and employment legal services we offer, please contact Dan Burke at 317.709.4242, or

Are Noncompete Agreements Enforceable in Indiana?

Under Indiana law, covenants not to compete (also known as noncompetition or noncompete agreements) in the employment setting are considered restraints on trade and are generally disfavored by the courts. However, Indiana courts will enforce noncompetition agreements if they are necessary to protect the employer’s business interests and are reasonable in scope. In other words, to be enforceable, a noncompete cannot impose restrictions that are vague or greater than necessary to protect the employer’s legitimate business interests.

The first step in determining enforceability of a noncompete is to determine whether or not the employer has a protectable business interest. In Indiana, protectable interests generally fall into one of two categories: (1) protection of the employer’s confidential or trade secret information, such as financial, marketing, or customer information; and (2) preservation of the employer’s relationships with its customers, including the business “good will” developed over time.

The second step is to weigh the scope of restrictions against the business interests at issue. In short, a noncompete cannot impose restrictions that are broader than necessary to protect the employer’s interests. So what does that mean? It means that an enforceable noncompetition agreement must be clear and be narrowly tailored to protect the employer’s business interests and no more.

A noncompete is more likely to meet this standard if it contains reasonable and precise limitations as to duration and scope of activity.

Although the facts and circumstances of a particular case would have to be considered, noncompete restrictions of up to two years will generally be considered reasonable and, therefore, enforceable.

In terms of the scope of restricted activity, there are generally two paths to consider. First, an employer can impose a geographic restriction, whereby the former employee is restricted from competing within certain geographic areas. However, a geographic limitation may extend only to those areas in which the former employee actually did business on behalf of the employer or within a reasonable distance from the employer’s primary place of business.

Second, an employer may seek to impose a customer-based restrictions (commonly expressed as a non-solicitation provision), whereby the former employee is prohibited from soliciting the employer’s customers. However, customer-based restrictions (or non-solicitation provisions) are generally limited to the employer’s current customers, not past or prospective customers.

An enforceable covenant not to compete must be reasonable with respect to the scope of activity restricted and cannot restrict a former employee from working for a competitor in any capacity. In other words, the agreement cannot restrict activity beyond the scope of the former employee’s employment. For example, a sales representative cannot be restricted from working for a competitor as a janitor or in some other capacity that would not encroach on the former employer’s business interests.

If you have questions, please don’t hesitate to contact me at or 317-709-4242.

What is a Noncompete Agreement?

Consider this scenario. You’ve just received an e-mail from your company’s top salesperson, informing you that she’s leaving the company and going to work for your competitor. As with most businesses, your company’s existing and repeat customers are its lifeblood. As with most businesses, your company relies on its sales representatives to establish, grow and maintain relationships with its customers. If your sales representatives leave, what’s to stop them from taking your customers along with them? What will prevent them from raiding your company’s other employees? What will keep them from using your company’s confidential information against it?

In most situations, the frustrating answer to these questions is: not much. However, you and your company can largely avoid this all-too-common conundrum and instill a measure of certainty with a carefully crafted covenant not to compete – otherwise known as a noncompete or noncompetition agreement.

Or, consider a different situation. You’ve just started your dream job. It’s the role you’ve been seeking for a long time. But, just as you’re about to get started, you get a letter from your former employer, reminding you that you signed a noncompete agreement when you started your last job. Can they do that? Is that agreement enforceable? Do you tell your new employer about it?

Let’s start with a basic explanation of noncompete agreements under Indiana law. A noncompete is a contract between an employer and its employee. It is designed to protect the employer’s business interests by preventing a former employee from utilizing for his or her own benefit—or for the benefit of a competitor—relationships formed and maintained on behalf of the employer or from confidential information the employee obtained in the course of employment.

Like all contracts, the noncompete must be supported by consideration, which means that there has to be an exchange of value (goods, services, money, promises to perform, etc.) for the contract to be enforceable. As for noncompete agreements, Indiana courts have concluded that continued employment – in other words, the right to come to work the next day – is sufficient consideration from the employer.

There are generally two types of restrictions found in most noncompetition agreements. First, employers may impose geographic restrictions, which prevent the former employee from engaging in competitive activities within certain geographic areas. Second, employers may insist on customer-based restrictions (also known as non-solicitation provisions), which preclude the former employee from engaging in competitive activities with respect to certain of the employer’s customers.

Generally, an employer should consider requiring any employee who is responsible for establishing, maintaining and/or growing customer relationships to sign a noncompete. This certainly includes sales representatives, but it could also include executives, office staff, delivery personnel and many other types of employees. Further, because noncompetition agreements can be coupled with anti-raiding, confidentiality and other important and generally applicable restrictions, employers often find it prudent to insist that all employees sign covenants not to compete.

In my next post, I'll discuss the enforceability of noncompete agreements under Indiana law. In the meantime, if you'd like to discuss implementing noncompete agreements for your company's employees, or if you find yourself confronting a former employer's noncompete agreement, please don't hesitate to contact me at or 317-709-4242.