Too Soon to Enforce a Non-Compete?

Category: Employment Law

Employers routinely require employees to sign a non-compete agreement, in order to prevent them from taking customers, business opportunities, and confidential information to a competitor. “Continued at-will employment” was historically deemed adequate consideration for such agreements in Michigan. An employer could discharge an employee for any reason at any time and, subject to considerations of fairness or equity, still move to enforce that employee’s non-compete agreement. No minimum period of employment or other consideration was necessary. This rule was helpful for employers, but sometimes onerous for employees. This long-standing rule may now be in flux.

Earlier this year, the Michigan Supreme Court agreed to hear arguments challenging whether a certain period of continued employment is necessary before a non-compete agreement becomes enforceable. The Supreme Court will consider the matter of Innovation Ventures, LLC v Liquid Mfg.where the court of appeals declined to enforce a non-compete against an employee who was terminated within weeks of signing the agreement. The Michigan Court of Appeals held that the covenant not to compete was not enforceable based upon a lack of consideration, i.e. two weeks of employment is not sufficient consideration. The full implications of this decision, anticipated Supreme Court review and lower court interpretation, may take years to play out. Businesses should be mindful of this pending avalanche, and should consider contingency plans.

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