October 28, 2019 Category: Employment Law
This article looks at how Michigan courts are still somewhat favorable to non-compete agreement.
Non-compete agreements have become a matter of intense debate in recent years. While many businesses argue that non-competes are necessary in order to protect sensitive trade secrets and fight unfair competition, others contend that non-competes prevent workers, especially low- and mid-level ones, from finding gainful employment. As Crain’s Detroit Business notes, in employment disputes many courts around the nation have taken a more skeptical stance towards non-compete agreements. However, Michigan courts have been an exception to this trend and have generally taken a more pro-noncompete stance when compared to other jurisdictions.
The enforceability of a non-compete agreement in Michigan largely depends on whether it is an employment non-compete or a commercial non-compete. As the Michigan Bar Journal points out, a recent Michigan Supreme Court case clarified that “reasonableness” is not always necessary for determining the enforceability of a non-compete. That ruling clarified that commercial non-compete agreements, such as those involving the sale of a business, franchisors, independent contractors, and others, can still be enforceable even if they are unreasonable to a contracting party. Commercial non-competes are only invalid if they violate antitrust “rule of reason” law.
In contrast, an employment non-compete law must pass a reasonableness test in order to be valid. While Michigan courts are still fairly pro-noncompete, they are also more skeptical of non-compete agreements that limit a former employee’s ability to find work than they are of a commercial non-compete agreement.
When determining whether an employment non-compete agreement is valid there are two especially important factors to consider: the business interests that are being protected and the restrictions being placed on the employee. A non-compete agreement cannot protect a business from legitimate competition, but if there are trade secrets and sensitive information that the business wants to keep confidential then a non-compete agreement can help protect those interests from falling into the hands of competing businesses.
Determining what reasonable restrictions of an employee are will depend on the circumstances surrounding each agreement. In some cases, restricting an employee from working for a competitor within a few miles’ radius may be reasonable, while in other cases the geographic area may be extended to the entire state or beyond. Most employment non-competes also specify a period of time during which the former employee cannot work for a competitor. Again, this duration of time must be reasonable.
For businesses, trying to impose a cookie-cutter non-compete agreement on all employees is asking for trouble. Instead, employers should talk to a business and employment law firm about drafting non-compete agreements and other employment contracts that address specific issues relevant to each employee’s circumstances . By ensuring that employment contracts are enforceable, businesses can rest assured that they will have done what they can to avoid costly disputes from arising in the future.