A Guide to Non-Compete Agreements in Michigan

Is my non-compete agreement enforceable? How to analyze a Michigan non-compete agreement.

Non-compete agreements have become increasingly popular among employers essentially wishing to foreclose competitors in the marketplace. In my experience, a large proportion of these agreements are not enforceable because the employer never bestowed anything of a competitive business nature upon the employee. That is to say, the employee does not have access to proprietary information, essential relations with customers, and aren’t in an industry that lends itself to losing goodwill if they leave the employer.

In Michigan, non-compete agreements are enforceable to a limit. The Michigan Antitrust Reform Act (MARA) limits these agreements to factors of reasonableness. It is difficult to advise clients on the potential enforceability of an agreement given that every employment situation is different and that these are “factors”; rather than hard rules. Thus, any analysis of the possible (un)enforceability of a non-compete must begin with an extensive review of the employer’s business and the employee’s role in that business.

Some employers send a reminder of their non-compete agreement at termination of employment as a matter of form. Others will only send a cease-and-desist letter if they learn that the employee has taken employment with a “competitor”. They likely also will send notice to the employee’s new employer, if there is one, that its continued employment of the employee is interference with that non-compete agreement and it faces litigation if it does not immediately terminate the employee. Ultimately, these cases often result in the former employer suing the employee’s new employer and the employee in the same lawsuit.

The MARA states that a non-compete is enforceable to the extent it:

• 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

Three general factors are considered in these matters:

1. An employer’s reasonable competitive business interests;
2. Covenant is reasonable as to its duration, geographical area and the type or employment or line of business;
3. A court may limit the agreement to render it reasonable in light of the circumstances in which it was made

The cases generally considering these factors, and remember these cases are very sensitive to the facts at hand, consider the following:

1. How long the restriction lasts and the geographic area that the restriction covers (generally no more than 2 years and reasonable local area will be reasonable)
2. Whether the employee was the sole contact with customers
3. Whether the employee possesses confidential information or trade secrets
4. Whether the covenant operates to bar the employee’s sole means of support
5. Whether the covenant seeks to stifle the inherent skill and experience of the employee
6. The likelihood that the employee can find other employment if the restriction is enforced
7. Whether the benefit to the employer is disproportional to the detriment of the employee.

The employer intent on enforcing its agreement, and willing to spend the money to do so, will almost immediately file a lawsuit seeking a preliminary and permanent injunction preventing the employee from the competing employment. Likewise, the employer often requests the court award its contractually established damages as the damages otherwise are nearly impossible to substantiate. As for the employee, not only are there defenses based on the MARA factors but also contractual defenses (e.g., lack of adequate consideration, fraud, employer breach etc). Other times, though rare, the employee may in fact be the one bringing the lawsuit asking the court to declare the non-compete agreement invalid. The court then must decide whether to enforce the agreement as written, enforce it but modify its terms or not enforce it at all.

If you are considering drafting, entering or litigating a non-compete agreement please contact The Schipper Law Group here or call us at (248) 729-2414. We have advised and represented hundreds of employers and employees in regard to non-compete agreements.

This is an excerpt from our book Know Your Rights, A Worker’s Guide to Michigan Employment Law. If you are interested to learn more about wage and hour law or the many specific nuances to Michigan employment law, you may download a free copy of the book here.