A Covenant Not To Compete in Michigan Can Be Enforceable

A Covenant Not To Compete in Michigan Can Be Enforceable

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Yes, non-compete clauses and non-compete agreements can be enforceable in court. Many, many years ago they were held to be unenforceable. The Michigan legislature stepped in and passed a statute as part of its anti-trust reform and changed the law. Michigan now is under a statute which says that non-compete agreements can be enforceable to the extent that they are reasonable, and that if the non-compete clauses in the agreement are too broad or are unreasonable, that a court may reform the contract to limit the non-compete and make it reasonable.

 

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Welcome to Non-Compete Law Radio. My name is Attorney Enrico Schaefer. I specialize in non-compete issues, employee confidentiality issues, protection of trade secret issues, and related matters. We represent both employers and employees on non-compete issues, so we understand both sides of the equation, and we are available to help clients in both areas.

There was an old myth in Michigan that seemed to prevail for many decades after a change in Michigan law. Yes, non-compete clauses and non-compete agreements can be enforceable in court. Many, many years ago they were held to be unenforceable. The Michigan legislature stepped in and passed a statute as part of its anti-trust reform and changed the law. Michigan now is under a statute which says that non-compete agreements can be enforceable to the extent that they are reasonable, and that if the non-compete clauses in the agreement are too broad or are unreasonable, that a court may reform the contract to limit the non-compete and make it reasonable.

So, if you are an employer who wants to protect your list of customers, your trade secrets, your confidential information, or simply preclude employees from going to work for competitors, the best way to do that is with a non-compete agreement. You can draft it broadly, knowing that a court will come in and limit the agreement, if necessary; if it goes beyond the legitimate business purpose which supports it.

If you are an employee, you need to understand that non-compete contracts are enforceable, and that if you sign them as part of your employment or after joining your employer, there is a chance that a court will, in fact, uphold that non-compete agreement and find it to be enforceable. There are many non-compete agreement samples or forms that are available on the Internet. The key is that you do want to hire a non-compete attorney to draft your non-compete agreement, to stylize it for your business because the paper itself may not be worth much if your business process behind the non-compete strategy doesn’t match the paper.

For both employer and employee, one of the early issues that everyone is going to face is: “Is the non-compete contract supported by a legitimate business purpose?” That means there has to be some legitimate business reason for the non-compete. If I hire a street sweeper, whose job is only to go to a street and sweep, it would be very difficult for me as an employer to put that person under a non-compete agreement. Because, what is my legitimate business purpose? What is it that I am trying to protect by that non-compete agreement? It might be that he is an incredible street sweeper and that he understands who the accounts are that are your company accounts. You may want to preclude him from soliciting those other accounts. There may be arguments there that can be made.

Obviously, as you go from street sweeper on up to management, and from management to officers, owners, and directors, it is much easier to identify for the court if a non-compete contract should go into litigation. It is much easier to support the legitimate business purpose. The main point as a non-compete lawyer that I would want to impress upon you, both the employer and the employee, is this. It is best to design the non-compete agreement from the ‘get-go’ around your specific business model so that you can show the court that, in fact, there are legitimate business interests that are being protected here.

You can identify those legitimate business interests, and you could provide documents that are dated years ago, that discuss and support the non-compete agreement. What happens all too often in non-compete contract litigation cases, when these cases actually go to court, is that everyone gets there and everyone is trying to figure out what is the reason for the non-compete agreement. How are we going to support this? What is the legitimate business interest? Well, that is not the time, especially from the employer’s point of view, where you need to be figuring that out. It should have already been figured out and documented.

If you are an employee who doesn’t want to sign a non-compete, many employers are willing to negotiate and make them reasonable. If you are going out the door as part of an exit interview or a severance arrangement with the employer, that is a time for both the employer and employee to sit down and go over the non-compete and make any adjustments that are reasonable.

Oftentimes, an employer will be most worried about one or two issues. The employer may say, “Hey look, I don’t want you soliciting any of the customers with whom you had contact with at my company.” The non-compete could be much broader than that. In order to gain certainty that the employee is going to actually comply with that provision, and the employee is not going to challenge the non-compete agreement, the employee may say, “Yes, I am willing to amend the non-compete agreement and confirm or reconfirm that I will not solicit any of the customers of the company for a period of, say, two years after departure. But, what I want in return is I want to be able to go out and work for this list of companies in some other capacity.” Oftentimes, an employer and employee working together can meet both goals as part of a separation or termination agreement.

My name is Enrico Schaefer. I am a Michigan attorney who specializes in non-compete law, non-compete agreements, and enforceability thereof. We’ll see you next time. Have a great day.

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