Michigan Non-Compete Agreements. Good for the Michigan Economy or Bad?

Michigan Non-Compete Agreements. Good for the Michigan Economy or Bad?

The debate of whether non-compete agreements are good for a state economy or bad is not a new one but the debate has freshened of late with discussions concerning the best ways to grow the Michigan economy.  Non-compete agreements are valid in Michigan provided the non-compete meets certain requirements.

Specifically, Michigan’s law on non-competes states:

An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited. MCL 445.774a (1).

A Michigan non-compete agreement is valid if it protects a legitimate business interest of the employer (usually a relatively easy threshold to meet) and  is reasonable as to geographic scope and time duration.  Courts vary significantly on what may be reasonable and the caselaw guidance on what is of reasonable time duration in Michigan is generally in the area of one to three years.  A reasonable geographic scope could be world-wide depending on the circumstances….and the judge you draw who is deciding your case.  Another relatively uncommon principle in Michigan is that judges in non-compete cases in Michigan are allowed to “blue-pencil” a non-compete agreement which means the court can rewrite it to make it reasonable in their opinion rather than simply striking a non-compete provision as invalid and unenforceable.

There are those who argue that with a mobile workforce that a stringent non-compete law is a disincentive for workforce talent to locate in Michigan.  It should be noted also that continuing employment has been held to be adequate consideration in Michigan to sustain a non-compete signed after employment begins….meaning the non-compete can be presented to the employer AFTER commencement of emploment and still be valid.  After all, the argument goes, who would leave a good paying job in their field of expertise to come to Michigan and leave their future ability to switch jobs to a judge who will decide, after the fact, whether their non-compete agreement is reasonable?

Given there are states that will not recognize the validity of employee non-competes such as California and Washington there is certainly merit in the discussion over whether the Michigan non-compete law in its current form is providing a disincentive in attracting workforce talent to Michigan.  Although there have been bills in the Michigan legislature that have proposed the elimination of non-competes or changes in the law that would require that a non-compete be presented to an employee in advance of an employment offer none of those bills have garnered much traction and did not pass.

What is your view of whether the current Michigan non-compete law is good or bad for Michigan.  We’d love to hear your comments.