Indiana Business Law Blog
Update on Bill Actions:
This bill was introduced on January 21 and on first reading was assigned to the Committee on Employment, Labor, and Pensions. The deadline for the House to pass the bill and send it to the Senate passed with no further action. Therefore, this bill will not become law this Session.
Noncompete Agreements
A noncompete agreement, or a covenant not to compete, is a contract that prohibits one party from conducting or participating in a business that competes with the business of the other party. In antitrust language, they are agreements in restraint of trade, or restrictive covenants. As such, courts scrutinize them closely and will enforce them only if they protect a legitimate business interest of one party (often an employer) and are limited to a reasonable scope of activities, a reasonable period of time, and a reasonable geographic area.
In April 2024, the Federal Trade Commission issued a rule that prohibited most noncompete agreements between employees and employers, but in August, a federal court ruled that the FTC had exceeded its authority and prohibited the rule’s enforcement.
House Bill 1625: Proposed Indiana Prohibition
Now a bill, House Bill 1625, that would prohibit all noncompete agreements created after June 30, 2025, has been introduced in the 2025 Indiana General Assembly. If passed, it would supersede any conflicting statute, including Ind. Code ch. 25-22.5-5.5, which prohibits some, but not all, noncompete agreements for physicians.
The operative language, which would appear in new Ind. Code ch. 25-1-23, is as simple as it is broad:
Sec. 2. No individual, person, or other entity may enter into a noncompete agreement.
The breadth is, indeed, striking in that it applies to all noncompete agreements regardless of the context. Most noncompete agreements prohibit an employee from activities that would compete with the employer’s business, both during the term of employment and for some period of time afterward. Courts have recognized that noncompete agreements that restrict an employee can affect the employee’s ability to earn a living. In addition, employees often have no leverage in negotiating a noncompete provision of an employment agreement. Thus, courts scrutinize employer-employee noncompete agreements very closely and apply high standards of reasonableness for the scope, duration, and geographic area of the noncompete restrictions.
However, noncompete agreements are also common in other types of contracts that involve far different equities. Most notably, contracts for the sale of a business often prohibit the seller from competing with the business after the buyer purchases it. In contrast with employer-employee noncompete agreements, a sellers’ promise not to compete is less likely to affect the seller’s ability to make a living, and the seller generally has more negotiating leverage than does an employee. While courts still scrutinize noncompete agreements between sellers and purchasers of businesses, they generally hold them to more relaxed standards than contracts that restrict an employee’s ability to make a living.
HB 1625 draws no distinction between noncompete clauses in an employment contract or in a contract for the sale and purchase of a business. It would prohibit all noncompete agreements. Period.
In conclusion, if a noncompete agreement could impact you or your business, Harshman Ponist Smith and Rayl, LLC is here to answer your questions. Reach out today for advice and personalized solutions that protect your interests.