Indiana Supreme Court Invalidates Non-Solicitation Clause

The Indiana Supreme Court has issued an Opinion finding the non-solicitation clause used by Zimmer invalid and unenforceable in the case of Heraeus Medical, LLC (“Heraeus”), et. al. versus Zimmer, Inc. (“Zimmer”), et al., originally filed by Zimmer in the Kosciusko Superior Court.

Robert Kolbe allegedly signed a noncompetition agreement (the “Kolbe Agreement”) shortly after transitioning into a new role with Zimmer that claimed to prohibit Kolbe from recruiting employees of Zimmer to work for a competitor. A couple years later, Kolbe terminated his employment with Zimmer, and went to work for a competitor of Zimmer, Heraeus. After Kolbe joined Heraeus, several of its positions were filled with former Zimmer employees. Zimmer then filed suit against Heraeus for violation of the Kolbe Agreement.

The trial court preliminarily enjoined Kolbe from recruiting Zimmer’s employees. On appeal, the Court of Appeals found the non-solicitation covenant was overbroad and thus unenforceable as written. However, it revised the non-solicitation covenant to make it “reasonable” by applying the covenant only to “those employees in which [Zimmer] has a legitimate protectable interest.” Heraeus Med., LLC v. Zimmer, Inc., 123 N.3d 158, 167-68 (Ind. Ct. App. 2019).

The case was then transferred to the Indiana Supreme Court. The Court reversed the preliminary injunction because the non-solicitation agreement was invalid out of the box and it would be improper to limit it even to a “reasonable” application. The Court began by noting that non-solicitation agreements are a form of noncompetition agreement that “are in restraint of trade and disfavored by law.” Thus, they are only enforceable when they are reasonable.

While Zimmer argued that the “blue pencil doctrine” allowed the court to sever any unreasonable portions of the Kolbe Agreement and enforce “the reasonable parts that remain,” the Court rejected this argument. The Court held that the non-solicitation covenant was “overbroad because it applies to all Zimmer employees.” A covenant that applies to all employees is simply invalid on its face. Further, Indiana’s blue pencil doctrine does not allow courts to add terms to an unenforceable restrictive covenant. In other words, the Court held given a non-solicitation covenant that is overly broad because it is not limited to employees with whom the employer “has a legitimate protectable interest,” a court may not add a term to the covenant that restricts its application to employees in which there may be a “legitimate protectable interest.”

This Indiana Supreme Court Opinion in Case No. 19S-PL471  was issued by Chief Justice Loretta Rush with Justices Steven David, Mark Massa, Geoffrey Slaughter and Christopher Goff concurring.