Update for Michigan Non-Compete Law

Matt:  Hi, and welcome back to Internet Law Radio. I’m Matt Plessner, and it’s time now for some updates on Michigan Non-Compete Law. And to help us out with this, we welcome back Mark Clark from the Traverse Legal office of Traverse City, MI. Mark, how are you?

Mark: I’m doing well, Matt. How are you today?

Matt: Doing very well. So Mark, what are some of the latest developments in Michigan Non-Compete Law?

Mark: Well Matt, Michigan currently has a senate bill pending, senate bill 786, which would provide a fairly significant change in Non-Compete Law. The only other state to have a similar law is New Hampshire. In the area of Non-Competes, employees who are provided a Non-Compete agreement are often provided a Non-Compete agreement after they commence employment, and are hesitant to sign them for the obvious reasons that they weren’t aware of what the restrictions would be prior to employment. This is an often litigated issue in whether or not a Non-Compete agreement is valid or invalid for lack of consideration. Most courts in Michigan will take the position that continuing employment is adequate consideration considering that an employee execute a Non-Compete agreement after starting employment. The new Michigan senate bill, if it passed into law, would prohibit an employer from requiring and employee to execute a Non-Compete if it was beyond the offer of employment. In other words, if an employer does not provide an employee the Non-Compete with the offer of employment, the employer subsequently cannot insist that the employee execute a Non-Compete. As I’ve indicated, there’s one other state that has actually adopted such law. And there’s some debate as to whether or not its beneficial for employees or not, but at least it would provide a bright-line test as to the validity of a Non-Compete after employment starts. One of the criticisms of the bill is that it would make it difficult or provide an incentive to promote employees to positions that would require a Non-Compete after the commencement of employment. My suggestion would be that that is an obvious issue that the legislature would likely address in any version of the law if it were to come into law, but it’s an interesting bill, and we’ll keep our eyes on it.  

One other item of note is the increasing or frequent use of unpublished Michigan Court of Appeals cases which have decided that in certain context, Non-Competes are invalid. There are two unpublished cases, which provide that the Non-Compete agreement in those respective cases are effective on termination or affective on separation of employment. The employers in both of those cases argued that the intent was that upon the expiration of the agreement, that the Non-Compete would be effective. The courts have said, “well you’d better use words that are more specific”, because in those cases, both courts indicated that the use of the terms “termination” and in the other case “separation of employment” meant what they said, which is that the Non-Competes would only be effective if they were terminated or otherwise separated from employment during the term of employment. So a caution to employers is to make sure that you utilize appropriate language that will make the Non-Compete effective on expiration of the agreement as well as termination or separation of employment, because courts are increasingly taking the narrow view and holding that those Non-Compete agreements are not effective on expiration. So Matt, those are the two most significant  recent developments in Michigan Non-Compete Law, and I think will probably do it for this afternoon.

Matt: Well thank you very much, Mark, for your help, and of course, as always, it’s been a pleasure having you here.

Mark: Very good, thank you. It’s always a pleasure, Matt.

Matt: And this is Matt Plessner speaking for Internet Law Radio.