In today’s business environment, it is important for companies to protect themselves from potential volatility and the sharing of any trade secrets or information from employees who part ways with the company. Non-compete agreements were created for this purpose and serve to protect companies from these risks, especially when employees leave the company to work for a direct competitor.
These agreements have been in common use in the business world for centuries, a strong testament to their effectiveness. That being said, it is wise to have these agreements drafted by an experienced attorney specializing in business law, as this can have a significant impact on their enforceability in a court of law.
Understanding the Details
Normally, these agreements are included as part of an employees written contract and therefore are a required condition for employment. In Michigan, there are no legal restrictions that prevent employers from rejecting an individual’s employment on the basis of their declination to sign a non-compete agreement. In fact, most employers will terminate or reject an individual’s employment if they decline signing, as this raises suspicion as to the loyalty and trustworthiness of the potential employee.
While the enforceability of these agreements varies by state to state, in Michigan they are considered enforceable, with a caveat – they must be considered reasonable agreements. Michigan courts will not enforce an unusually restrictive or unreasonable non-compete agreement. This measure of reasonability is generally considered to be a fair balance of the employers and employees interest.
Generally speaking, these non-compete agreements include several key aspects. The first of these is the outlining and defining of who the employer and employee is, as well as the legal address of the business, the type of business it is engaged in and the job description of the employee. The next aspect is the acknowledgement of a relationship between the employee and employer, which defines non-compete as part of the larger representative agreement.
After the definitions and clarification of the relationship between the two parties, the following aspect is the details of what is included under the non-compete clause. This generally includes things such as restrictions on working at certain competitors, mileage radius from the employer in which a former employee cannot work within, and the restriction duration after termination or separation. The final aspect is the listing of any relevant federal or state laws surrounding non-compete agreements, which is normally the final portion of the document. It then contains the date and signature section which once signed makes it a legal document.
Enforceability of Non-Compete Agreements
There are four key elements of a Michigan non-compete agreement that determine whether the agreement is reasonable and enforceable. These include: duration of restriction, restricted geographical area, the type of employment or line of business that is restricted, and the competitive business interests that are being protected. If any of these restrictions are deemed unreasonable by the court, they are unenforceable and the employee can get out of the non-compete agreement as it will be considered null and void.
The duration of the restriction that is deemed reasonable will vary depending on the circumstances surrounding the business as well as the type of employment. In Michigan, the courts have generally found that a restricted time period of up to a year is considered reasonable and enforceable. The geographical area of the restriction will depend on the type and size of business, and the courts will require this to be specific and justifiable in order to be considered reasonable.
In order to improve the chances of a non-compete agreement to be considered reasonable, the agreement should include specific types of employment or lines of business that are restricted for the former employee. Not having this specified will almost certainly result in the agreement being thrown out by the court. On top of this, the agreement must be shown to be necessary for the protection of specific business interests. If a non-compete agreement cannot show or indicate the specific interests it is looking to protect, then it is highly likely that it will be thrown out. These interests can include things such as trade secrets, intellectual property, relationships with customers and clients, any confidential information and also specialized training that can be beneficial to a competitor.